Sea Isle City 1031
Exchange Information
The opportunity to
protect hard earned equity in the sale of an
investment has been available to consumers
since 1921. However, complexities and
details of the tax code prevented only the
most knowledgeable from using this option.
In 1990 the Omnibus Budget Act clarified the
process an opened this option to a broader
set of consumers.
Section 1031 Exchanges, which have become
more popular since the mid-90s, allow
investors to defer the tax on capital gains
until some point in the future.
Section 1031 of the Internal Revenue Code
provides that no gain or loss shall be
recognized on the exchange of property held
for productive use in a trade or business,
or for investment. A tax-deferred exchange
is a method by which a property owner trades
one or more relinquished properties for one
or more replacement properties of
"like-kind", while deferring the payment of
federal income taxes and some state taxes on
the transaction.
The theory behind Section 1031 is that
when a property owner has reinvested the
sale proceeds into another property, 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.
The like-kind exchange under Section 1031
is tax-deferred, not tax-free. When the
replacement property is ultimately sold (not
as part of another exchange), the original
deferred gain, plus any additional gain
realized since the purchase of the
replacement property, is subject to tax.
See our Sea Isle City 1031 FAQ's Page
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