Get Tax-free Like-kind Exchanges

2023 is poised to be a big year for real estate owners who are looking to take advantage of the 1031 exchange, also known as the "like-kind exchange." A 1031 exchange is a tax strategy that allows real estate owners to defer paying capital gains taxes on the sale of a property by using the proceeds from that sale to ...

Like-kind exchanges -- when you exchange real property used for business or held as an investment solely for other business or investment property that is the same type or “like-kind” -- have long been permitted under the Internal Revenue Code.

What are the IRS rules for a 1031 exchange? Needs to be like-kind property. Must be the same taxpayer. Needs to be investment or business property. Property must be of equal or greater value. Must follow the 1031 exchange timeline.

Generally, if you make a like-kind exchange, you are not required to recognize a gain or loss under Internal Revenue Code Section 1031. If, as part of the exchange, you also receive other (not like-kind) property or money, you must recognize a gain to the extent of the other property and money received.

A 1031 exchange gets its name from Section 1031 of the U.S. Internal Revenue Code, which allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like-kind and equal or greater value.

As a result of the February 24, 2023 IRS notice, those who meet the requirements will be given an extended general postponement deadline of October 16, 2023, allowing taxpayers more time to identify a replacement property and complete their 1031 exchange transaction.

Under the repealed Section 1031, exchanges now apply exclusively to real estate assets. Examples of personal property assets that can no longer be exchanged include: intangibles, franchise licenses and patents, aircraft, vehicles, machinery and equipment, boats, livestock, artwork and collectibles.