1031 Tax Exchange
Thursday, March 27th, 2008The indefinite capital gains deferral a 1031 exchange provides to the investor might, at first glance, appear to be a sort of gift from the US government, however it is, in reality, closer to an interest free loan. This is because there is an expectation that the investor will repay the funds acquired by way of the capital gains tax deferral by accepting capital gains liability upon the subsequent sale of a replacement property. In addition, this interest free loan may be kept for an indefinite period of time; an investor may choose to make any number of 1031 exchanges before ultimately electing to sell outright, at which point the investor must pay capital gains taxes.
1031 exchanges are not limited to buildings and land, either. It is possible to make 1031 tax exchanges on any sort of real estate you are holding for investment in your business or trade, in addition to some types of personal property, from cranes or backhoes to an aircraft or collector car. In fact, 1031 exchanges are especially advantageous to those who have money in collectibles or antiques such as collector cars, because of the greater capital gains tax liability on the sale of these items. You cannot, however, make a 1031 tax exchange on things like shares of stock, bonds, or interest in a Real Estate Investment Trust.
