1031 Tax Exchange Explained




1031 Tax Exchange Explained

A 1031 tax exchange is the IRS approved method enabling the deferment of federal (and most state) capital gains taxes through the sale and direct reinvestment of all proceeds into other like kind commercial real estate commercial real estate. The theory behind internal revenue code is that when a real estate has reinvested the sale proceeds into another commercial real estate, the economic gain has not been realized in a way that generates funds to pay any tax. In other words, the taxpayer's investment is still the same, only the form has changed (e. g. vacant land exchanged for apartment building). Therefore, it would be unfair to force the taxpayer to pay tax on a paper gain.

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