The purpose of the Exchange is, in most cases, to defer the payment of taxes on some or all of the capital gain property that is exchanged. The Internal Revenue Service, through 1031 of the Internal Revenue Code, recognizes that an exchange of "like-kind" property is not a taxable event. Under Section 1031, there is no taxable gain or loss recognized where property held for investment or business is exchanged solely for property of "like-kind" which is to be held for investment or business.
WHY EXCHANGE?
Because preserving your assets make sense, doesn't it? If you have owned investment property for the last several years, it has probably appreciated in value. A sale now would result in a reduction in assets available for a subsequent purchase. However, if you were to exchange your current property for another property, all or some of the tax on the gain could be deferred, and you could put that money into your next purchase and not give it to the IRS in the form of taxes. WOW! What a great vehicle for preserving your money and acquiring another property!!!
If you are interested in a 1031 exchange, please contact your accountant/lawyer to ascertain whether this would be appropriate for your particular tax consequences.
Our office has done them and we would be glad to help you with your new purchase.
