1031 Tax Exchange
March 26th, 2008
The indefinite capital gains tax deferral an exchange provides to the taxpayer might, at first, appear to represent a sort of gift given by the US government, but it is, in reality, closer to an interest free loan, because the investor is expected to repay the extra money acquired by way of the deferral by paying capital gains taxes upon the subsequent sale of a replacement property. Additionally, this interest-free loan is one that may be kept by the investor indefinitely; an investor can conduct any number of exchanges before finally sell outright, at which point taxpayer must pay capital gains taxes.
1031 exchanges aren’t just for buildings and land, either. It is possible to make an 1031 tax exchange on any type of real estate held for investment in your trade or business, as well as certain types of personal property, from cranes or backhoes to an aircraft or collector car. Section 1031 is especially advantageous to those who have invested in collectibles or antiques like collector cars, in light greater capital gains tax liability on the sale of these items. It is important to note, however, that you cannot exchange shares of stock, bonds, or interest gained from an REIT.