Whenever a taxpayer sells business or investment-related real property, the taxpayer may have a gain on which he or she must pay tax at the time of sale. Section 1031 provides an exception and allows the taxpayer to postpone paying tax on the gain if he or she reinvests the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under Section 1031 is tax-deferred, but it is not tax-free. The Tax Cuts and Jobs Act of 2017 limited Section 1031 to exchanges of real estate. The exchange can include like-kind property exclusively, or it can include like-kind property along with cash, liabilities and property that are not like-kind. If the taxpayer receives cash or relief from debt or property that is not like-kind, however, some taxable gain may be triggered in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like-kind property of lesser value.
- Who qualifies for the Section 1031 exchange?
- What property qualifies for a like-kind exchange?
- Time limits to complete a Section 1031 deferred like-kind exchange
- Restrictions for deferred and reverse exchanges
- How to compute the basis in the new property
- Form 8824 -- reporting Section 1031 like-kind exchanges to the IRS
- Advise clients regarding the tax rules associated with Section 1031 like-kind exchanges, as revised as the Tax Cuts and Jobs Act of 2017
Tax professionals who advise clients regarding the tax consequences of a like-kind exchange
Basic knowledge of individual income taxation