It’s a section of the Internal Revenue Code that allows taxpayers to defer the capital gain on the disposition of a property held or used for investment, business, or trade purposes. These exchanges are known as “Like Kind Exchanges”, “Delayed Exchanges”, “Deferred Exchanges”, and also “Starker Exchanges”. It is good to note that they all refer to a 1031 Exchange.
The Tax Deferred Exchange and It’s purpose
The 1031 Exchange offers Investors one of the last great opportunities to build wealth and save taxes. By completing an exchange, the Investor can dispose of their investment property and use the equity to acquire replacement investment property, defer the capital gain tax that would ordinarily be paid and leverage all of their equity into the replacement property.
There are two requirements that must be met to defer the capital gain tax: (1) The Exchanger must acquire “Like-Kind” Replacement Property (2) The Exchanger cannot receive cash or other benefits (Unless the Exchanger pays capital gain taxes on this money).