Tax Exchange refers mainly to Section 1031 of the Internal Revenue Service Code. It is also known as “1031 Tax Exchange.” This section outlines the tax status of “like-kind” real estate exchanges. It helps one in structuring the sale or disposition of real estate (including personal property) and the acquisition of similar real estate as a tax-deferred exchange transaction, in order to defer certain federal taxes and in many cases even capital gain and depreciation recapture taxes.
As far as the meaning of “like kind” is concerned, in the context of a 1031 exchange it means that when it comes to real estate, all forms are “like kind” to all other forms. In other words, an office building can be exchanged for a trailer park.
There are certain properties that are known as 1031 properties. To reap benefits according to Section 1031 in IRS, one can purchase any of these properties. A large number of real estate consultants and law firms also help the buyers in sorting out certain complex issues that are associated with Section 1031. The 1031 properties can also be viewed online. The exchanges under the Tax Exchange law can take place in virtual dealing rooms that are also operating on the web.
Several types of 1031 exchange methods are in use. These include reverse exchanges, simultaneous exchanges, and delayed exchanges. To complete a transaction under 1031 exchange, one needs a qualified intermediary (QI). So once an investor has made an exchange decision, it is advisable to contact a QI as soon as possible. The most difficult part of this transaction is to find a replacement property. However, large numbers of property owners are taking advantage of this tax benefit by reinvesting their sale proceeds from a property in a like-kind property.