IRS §1031 Like-Kind Exchanges

A like-kind exchange is a way for business owners to sell their property and buy other like-kind property without immediately paying capital gains tax.

IRS §1031 provides that no gain or loss shall be recognized on the exchange of property held for productive use in a trade or for investment. A tax-deferred exchange is a method by which a property owner trades one or more relinquished properties for one or more replacement properties that are like-kind, while deferring the payment of federal income taxes.

The like-kind exchange is tax-deferred, not tax-free. But, by deferring the tax you have more money available to invest in another property. In effect, you receive an interest free loan from the federal government, in the amount you would have paid in taxes.

A Qualified Intermediary (QI) is required to facilitate any IRS §1031 transaction. A QI is an independent party who acts under a written agreement with the taxpayer to acquire the relinquished property and transfer it to the buyer thereby preventing the taxpayer from having constructive receipt of the funds.

At Ballou & Bedell we help structure like-kind exchanges for our clients. We also act as Qualified Intermediaries. Contact us for more information.

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