The 1031 Exchange has been cited as the most powerful wealth building tool still available to taxpayers. It has been a major part of the success strategy of countless financial wizards and real estate gurus.
Taking it’s name from section 1031 of the Internal Revenue Code, a tax-deferred exchange allows a taxpayer to sell rental investments or business property and replace it with a like-kind property.
Capital gains on the sale of this property are deferred or postponed as long as the IRS rules are meticulously followed. This is a wise tax and investment strategy as well as an estate planning tool. In theory, an investor could continue deferring capital gains on investment property until death, potentially avoiding them all together.
Consult your tax preparer.