A 1031 Tax Exchange is Healthy for Investors!
03.28.08 - 09:31pm
The capital gains tax deferral Section 1031 grants to the investor might, at first, appear to represent a kind of gift from the US government, but it is, in reality, more like an interest-free loan. This is because there is an expectation that the taxpayer will repay the money gained from the tax deferral by paying capital gains taxes on the eventual sale of a replacement property. In addition, this interest free loan may be kept for an indefinite period of time; an investor may conduct any number of exchanges before ultimately making the decision to sell outright, at which point taxpayer must pay taxes.
A 1031 exchange doesn’t apply just to buildings and land, either. You can conduct a 1031 tax exchange on any type of real estate held for investment in a business or trade, and some kinds of personal property as well, from a backhoe or crane to an aircraft or collector car. In fact, Section 1031 is especially beneficial to those who have invested their funds in antiques or collectibles like classic cars, in light higher capital gains liability on the sale of these types of items. You cannot, however, exchange stock, bonds, or interest in a Real Estate Investment Trust.