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1031 Like Kind Exchanges

Partners in your development.

In a perpetually competitive and volatile real estate market, business owners and investors looking to sell real estate are increasingly considering the tax advantages of 1031 like-kind exchanges.

What is a 1031 like-kind exchange?

Generally, when you sell a business or investment property and have a gain, you must pay tax on the gain at the time of the sale. Internal Revenue Code (IRC) Section 1031 provides an exception. No gain or loss is recognized, and therefore, tax is deferred on the exchange of property that meets the following tests:

  • The transaction is a reciprocal transfer of property (aka, exchange)
  • The property is exchanged solely for property of the same class (aka, like kind)
  • Both the property transferred and the property received are held for investment or productive use in trade or business (not primarily for sale)
  • Property exchanged is real estate

The U.S. and state governments want to encourage businesses to grow and increase production. However, they also recognize that taking out cash to pay taxes stifles growth. Therefore, by following the rules mentioned above, businesses and individuals have considerable flexibility in exchanging real property while deferring taxes.

Selecting the right accounting firm

The potential to defer taxable gains, and therefore capital gains tax, makes 1031 exchanges a valuable way to free up cash flow while building your real estate portfolio or production capacity. However, unwary real estate owners can make simple mistakes that derail the exchange, such as failing to close on the replacement property within 180 days.

Substantial real estate transactions involve complex calculations that require a deep understanding of the nuances of real estate taxation. Issues such as partnership interest, taxable boot, and proper accounting treatment of property depreciation can trip up less experienced accountants.

BeachFleischman has been structuring 1031 exchanges throughout the U.S. for decades. Our professionals stay informed on the latest regulatory and case law developments through annual real estate conferences. In addition to helping our clients achieve their tax-minimization goals, our expertise and thorough documentation mean that our 1031 exchanges stand up under IRS audit.

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Whether you are a business owner looking to upgrade to a larger warehouse or office building, or you are a real estate investor seeking to build your portfolio of rental real estate while deferring capital gains tax, contact us today to explore whether a like-kind exchange will accomplish your goals.

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