1031 Exchange

Purpose of 1031 Exchange:

• defer capital gains tax
• retain the gain for re-investment in like-kind property

By doing a 1031 exchange, a taxpayer may dispose of "property held for productive use in a trade or business or for investment" (which we'll call "income or investment property"), and acquire replacement income or investment property, without recognition of capital gain in calculating the taxpayer's income tax. By avoiding recognition of capital gain, the taxpayer defers payment of income taxes, indefinitely at the taxpayer's discretion, without any penalty or interest coming due to the IRS or state tax authorities.

Qualifying Property:

Property must be held

• for investment purposes

                        or

• for productive use in a trade or business

Property must NOT be

• used as a primary residence
• held primarily for sale (dealer property)

For a short course on the 1031 Exchange process, please visit First American Exchange.