A Quick Review of the Most Commonly Misunderstood Aspect of 1031 Exchanges

Yesterday, we examined some more advanced aspects of 1031 exchanges that addressed like kind property issues. I thought it would be helpful to do a quick review on one of the most confusing areas of 1031s.

One of the most commonly misunderstood aspects of 1031 exchanges is the concept of Like Kind Property. People commonly think that if they sell a duplex only a duplex will be like kind in their exchange. That couldn't be farther from the truth.

The definition under the tax code of like kind property is "property held for productive use in a trade or business OR for investment." [emphasis mine] The key here is the investor's intent. Did the investor intend to hold the property for investment purposes (NOT RESALE)?

So under this definition, you could SELL single family residences

and BUY bare land

Or, you could sell bare land and buy commercial property. . .

It all has to do with how the investor treats the property prior to sale (Relinquished Property) and after purchase (Replacment Property). It must be held for investment.

This allows an investor to diversify his real estate portfolio for prudent investing. The 1031 exchange process allows the investor to defer the capital gain tax due on the sale of the appreciated property and use the deferred tax as additional equity in a new and possibly more valuable property.

Regardless of what you sell or buy, it is critical that you choose an experienced Qualified Intermediary that has an established track record for safe and secure exchanges. Asset Preservation,Inc. has performed over 130,000 secure exchanges since 1990. Our experience, customer service, security and knowledge are unsurpassed. Call us today!

THIS INFORMATION IS PROVIDED FOR EDUCAITONAL AND INFORMATIONAL PURPOSES ONLY. THIS IS NOT TAX/LEGAL ADVICE. INVESTORS ARE STRONGLY ADVISED TO SEEK THE GUIDANCE OF THEIR INDIVIDUAL TAX/LEGAL ADVISORS REGARDING THE SPECIFIC FACTS AND CIRCUMSTANCES OF THEIR TRANSACTION.

Lisa A. Lambert, Esq. 877.646.1031 or LisaL@apiexchange.com

Asset Preservation, Inc. 800.282.1031 or info@apiexchange.com or www.apiexchange.com