The information below is provided as a free service and we take no responsibility for its accuracy or relevance to any particular taxpayer. You should consult your tax advisor for more details.
Nontaxable exchanges offer significant opportunities for the deferral of federal income tax.
Section 1031 of the Internal Revenue Code provides an exception from the general rule that would require the immediate recognition of gain from the sale or exchange of property. Under Section 1031, no gain or loss is recognized if property held for productive use in a trade or business or for investment is exchanged solely for property of a like kind to be held either for productive use in a trade or business or for investment. The test of whether or not a property is held for investment is applied at the time of the exchange. Not all property received in an exchange has to be like kind property, but to the extent that property is received that is not like kind property, it constitutes boot, and boot figures into the computation of how much of the gain from the exchange is taxable. Accordingly, because of the receipt of property which is not like kind, it may result that a transaction is both partly taxable and partly tax free under Section 1031.