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The deferral of capital gains
tax from the exchange of Investment property into other
investment property is the basis of the 1031Exchange.
Investment property includes both real and personal property
held for investment or used in a trade or business. The
exchange of investment property under Section 1031 allows
the exchanger (taxpayer) to avoid depletion of equity
resulting from payment of taxes upon the sale of his or
her property. Based on the "Continuity of Investment"
principle, the exchanger may invest the entire equity
accrued in his or her investment property in the replacement
or "trade" property. Timing is critical: the
replacement property must be identified and acquired within
a statutory time period commencing with the close of escrow
of the relinquished property. There are a variety of exchanges
solutions to be utilized to complete the deferral of Capital
gains tax, they are as follows:
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