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Tax Free Exchange Agreement Section 1031

A Tax Free Exchange is a means of deferring capital gains tax by selling investment or business property and reinvesting the capital in other property. See free previews and download all legal forms at USlegalforms.com, your online source for legal forms; the forms professionals trust.



A 1031 tax deferred property exchange is an exchange in which capital gains tax deferral is available to real estate owners who sell their investment, rental, business or vacation real estate, and reinvest the net proceeds in other real estate. Real estate held for these purposes are called like-kind/1031 properties. A section 1031 real estate exchange is simply a method by which a real property owner disposes of one property and acquires another without having to pay capital gains tax on the transaction. In addition, there is a 25% depreciation recapture. This can be significant for properties that are fully depreciated. In an ordinary sale transaction, the property owner is taxed on any gain realized by the sale of the property. In a section 1031 real estate exchange, the tax and recapture on the sale are deferred indefinitely.

Property owners may sell like-kind properties and defer taxes on the sale's profits by meeting the requirements of Internal Revenue Code (IRC) 1031 exchange. The purpose of the 1031 Exchange is to allow sellers of like-kind property to buy replacement property of like-kind within a specific time period and defer taxes.

Relevant legal forms include:

  • Publication 544 (2003), Sales and Other Dispositions of Assets
  • Tax Free Exchange Agreement
  • Letter - Tax Clearance Letters
  • Publication 544, Sales and Other Dispositions of Assets
  • Form 4797 (PDF), Sale of Business Property
  • Form 1040, Schedule D (PDF), Capital Gains and Losses
  • Form 8824 (PDF), Instructions, Like Kind Exchanges