Tax Updates Affecting Real Estate Investors: Capital Gains & 1031 Exchanges

Posted February 28, 2011 Overall Rating:

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The Internal Revenue Service (IRS) on April 25, 1991 released a program: The Deferred Exchange Regulation-Reg 1.1031(k)-1, branded the IRC 1031 Exchange. What this means to a real estate investor is they can defer (put-off) capital gains taxes that come about from the sale of an investment property as long as the proceeds from that sale are used to buy one or more investment properties within 180 days of the close of the sale. All purchases and sales must adhere to the specifications listed in the IRC 1031 Exchange guidelines. It is important to know that both properties must be held for use in a trade, business or for investment real estate. Properties used primarily for personal use, like a primary residence, second home or vacation home, do not qualify for the deferment.

Please note that the above description of a 1031 tax-deferred exchange is a brief overview, and serves only as an introduction. It’s highly recommended that all real estate investors consult an real estate accounting or tax law expert, and review the IRS’s own overview of 1031 Exchanges (http://www.irs.gov/newsroom/article/0,,id=179801,00.html), as 1031 exchanges are extremely complex. Finally, for more information about tax deductions for real estate investors, please see our article on Landlord Tax Strategies.

The information provided herein is intended as a general discussion of legal issues concerning landlord tenant law. Information provided is not legal advice or a legal opinion, and it is recommended that the reader seek independent counsel for any specific issue.