Conduct a 1031 Exchange
Wednesday, March 26th, 2008
The indefinite capital gains tax deferral Section 1031 provides to the investor might, at first glance, seem to be a sort of gift given by the US government, but it is, in reality, more like an interest-free loan, because the investor is expected to “repay†the extra funds gained from the deferral by accepting capital gains liability on the subsequent sale of a replacement property. In addition, this interest free loan may be kept for an indefinite period of time; an investor may elect to make any number of exchanges before finally sell outright, at which point the investor must pay taxes.
1031 exchanges aren’t just for buildings and land, either. It is possible to conduct a 1031 exchange on any sort of real estate held for investment in your business or trade, as well as certain types of personal property, from a backhoe or crane to airplanes or classic cars. Section 1031 is especially beneficial to those who have invested their funds in collectibles or antiques like classic cars, in light higher capital gains tax liability on the sale of these items. You cannot, however, make a 1031 tax exchange on things like stock, bonds, or interest gained from an REIT.