Business Is Pleasure

A 1031 Exchange

The indefinite capital gains tax deferral a 1031 exchange provides to the taxpayer may, at first glance, seem to represent a kind of gift from the US government, however it is, in reality, more like an interest-free loan. This is because there is an expectation that the taxpayer will repay the extra money acquired by way of the deferral by accepting capital gains liability upon the eventual sale of a replacement property. In addition, this interest-free loan may be kept indefinitely; an investor can conduct any number of exchanges before finally deciding to sell outright, at which point taxpayer must pay capital gains taxes.

1031 exchanges aren't just for buildings and land, either. It is possible to conduct an exchange on any real estate you are holding for investment in a business or trade, in addition to certain kinds of personal property, from a backhoe or crane to airplanes or classic cars. As a matter of fact, 1031 exchanges are particularly beneficial for those who have invested their funds in antiques or collectibles like classic cars, because of the greater capital gains tax liability on the sale of these items. You cannot, however, exchange shares of stock, bonds, or interest gained from an REIT.