Why should I exchange?

Believe it or not, IRC 1031 Tax Deferred Exchanges have been around since 1921. Exchanges or non-taxable sales, allow real estate investors to trade out of property held for the productive use of business or trade or for investment purposes into other investment property or properties without paying capital gains taxes due on the gain realized on the original property.

In addition to the rule that exchangers must trade for "like kind" property or properties, it is important to look at the language regarding 1031 Tax Deferred Exchanges found in the Internal Revenue Code, which says, "No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like-kind which is to be held for productive use in a trade or business or for investment." In other words, capital gains taxes can be deferred if all cash proceeds from the original property are used to acquire a replacement property and the exchanger ends up with an equal or greater amount of debt on the replacement property.

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