EXCHANGE
BASICS
What isa §1031 Exchange? 
§1031, of the
Internal Revenue Code of 1986, as amended, offers real estate investors one of
the last great investment opportunities to build wealth and save taxes. By
completing an exchange, the investor (Exchanger) can dispose of their investment
property, use all of the equity to acquire replacement investment property,
defer the capital gain tax that would ordinarily be paid, and leverage all of
their equity into the replacement property. Two requirements must be met to
defer the capital gain tax: (a) the Exchanger must acquire like-kind replacement
property and (b) the Exchanger cannot receive cash or other benefits (unless the
Exchanger pays capital gain taxes on this money). The tax code states: "No
gain or loss shall be recognized on the exchange of property held for productive
use in a trade or business or for investment purposes if such property is
exchanged solely for property of a like-kind which is to be held for either
productive use in trade or business or for investment purposes." Investors
can accomplish virtually any investment objective with exchanges including
greater leverage, diversification, freedom from joint ownership, improved cash
flow, geographic relocation and/or property consolidation.
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