1031 Tax Deferred Exchange Explained

1031 Tax Deferred Exchange Explained

Internal Revenue Code allows a property owner of investment rental property to exchange rental property and defer paying federal and state capital gain taxes (20%+ applicable state taxes) in the event that they purchase a like-kind rental property. A tax-deferred exchange is a method by which a property owner trades one or more relinquished rental properties for one or more replacement rental properties of like-kind, while deferring the payment of federal income taxes and some state taxes on the transaction. 1031 Tax Deferred Exchange is one of the best possible strategies for deferring the capital gains that would ordinarily arise from the sale of rental property. It provides property owners with greater leverage, increased diversification, improved cash flow, increased potential for geographic relocation and potential rental property consolidation.

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