Since 1921 the tax code has allowed that any real estate held for investment or productive use in a trade or business may be exchanged for any other real estate that is held for investment or productive use in a trade or business. An apartment may be exchanged for an office property, office for retail, raw land for a TIC or DST, etc.
Section 1031 of the Internal Revenue Code Specifically 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 like-kind, which is to be held for productive use in trade or business or for investment purposes."
Reasons to Consider a 1031 Exchange:
- Deferral of Tax on Capital Gains and Depreciation Recapture
- Relieve the burden of active real estate ownership and property management
- Improve cash flow and appreciation potential
- Ability to exchange into a higher quality property or properties
- Achieve greater diversification
- Facilitate estate planning
