{"id":1116,"date":"2020-02-11T05:41:00","date_gmt":"2020-02-11T05:41:00","guid":{"rendered":"http:\/\/www.irstaxapp.com\/?p=1116"},"modified":"2020-02-11T09:08:21","modified_gmt":"2020-02-11T09:08:21","slug":"section-1031-change-that-will-affect-you","status":"publish","type":"post","link":"https:\/\/www.irstaxapp.com\/section-1031-change-that-will-affect-you\/","title":{"rendered":"1031 Exchange Rules Modified : Here is A Fresh Look on Section 1031 ."},"content":{"rendered":"<p style=\"text-align: justify;\">1031 exchange rule gets a heavy change vide the recently passed law-The Tax Cuts &amp; Jobs Act. So, one of the major provision of law that was used by a taxpayer to save on capital gains tax requires fresh look and understanding. Fact is that heavy lobbying by various NGOs for preventing any change to section 1031 has given fruit as most of the benefits as far as real estate is concerned remained intact. But for the benefit of wholesome understanding of 1031 exchange rule in the context of newly passed Tax Cuts and Jobs Act, let answer basic FAQS on this rule<\/p>\n<p style=\"text-align: justify;\"><!--more--><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_62 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-662d9835993ee\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-662d9835993ee\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.irstaxapp.com\/section-1031-change-that-will-affect-you\/#What_is_a_1031_exchange\" title=\"What is a 1031 exchange?\">What is a 1031 exchange?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.irstaxapp.com\/section-1031-change-that-will-affect-you\/#What_can_be_like-kind_property\" title=\"What can be like-kind property?\">What can be like-kind property?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.irstaxapp.com\/section-1031-change-that-will-affect-you\/#_What_are_types_of_1031_Exchanges\" title=\"\u00a0What are types of 1031 Exchanges?\">\u00a0What are types of 1031 Exchanges?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.irstaxapp.com\/section-1031-change-that-will-affect-you\/#How_much_capital_gains_exchange\" title=\"How much capital gains exchange?\">How much capital gains exchange?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.irstaxapp.com\/section-1031-change-that-will-affect-you\/#What_has_changed_in_1031_Exchange_Rule\" title=\"What has changed in 1031 Exchange Rule?\">What has changed in 1031 Exchange Rule?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.irstaxapp.com\/section-1031-change-that-will-affect-you\/#What_type_of_property_clearly_out_of_like-kind-exchange_rule\" title=\"What type of property clearly out of like-kind-exchange rule?\">What type of property clearly out of like-kind-exchange rule?<\/a><\/li><\/ul><\/nav><\/div>\n<h2 style=\"text-align: justify;\"><span class=\"ez-toc-section\" id=\"What_is_a_1031_exchange\"><\/span>What is a 1031 exchange?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\">How does 1031 exchange work ? The section 1031 like-kind exchange rule provides that the gain or loss should not be\u00a0recognized to the extent that property held for productive use in the taxpayer\u2019s trade or business, or held for investment purposes, if such property is\u00a0 exchanged for property of a like-kind that also is held for productive use in a trade or business or for investment.<\/p>\n<p>A 1031 exchange means that if you exchange your property with a like-kind property,\u00a0any\u00a0gain on the value difference will not be charged to tax under capital gains.\u00a0In other words,\u00a0<a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/1031\" target=\"_blank\" rel=\"noopener\">IRC 1031<\/a> allows an investor to \u201cdefer\u201d paying capital gains\u00a0taxes on transfer\u00a0or sale of an investment\u00a0property in consideration\u00a0of a \u201clike-kind property\u201d.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_can_be_like-kind_property\"><\/span>What can be like-kind property?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Like-kind property can be any property held for productive use in a trade or business or for investment. Any type of investment property can be exchanged for another type of investment property. For example,<\/p>\n<ol>\n<li>a\u00a0single-family residence can be exchanged for a duplex,<\/li>\n<li>raw land for a shopping centre, or<\/li>\n<li>an office for apartments.<\/li>\n<\/ol>\n<p>Any combination will work. The exchanger has the flexibility to change investment strategies to fulfil their needs.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"_What_are_types_of_1031_Exchanges\"><\/span>\u00a0What are types of 1031 Exchanges?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ol>\n<li data-fontsize=\"16\" data-lineheight=\"24\">Simultaneous Exchange- which basically means you relinquish and close on a replacement property in the same day. Rarely happens nowadays\u00a0for a variety of reasons.<\/li>\n<li data-fontsize=\"16\" data-lineheight=\"24\">Delayed Exchange-Under this type of exchange, a person gets 180 days after the sale or transfer of his property to identify replacement property.<\/li>\n<li data-fontsize=\"16\" data-lineheight=\"24\">Reverse 1031 Exchange-\u00a0 you buy first and you pay later.\u00a0 A bit difficult proposition for many because banks may not lend you money as you don&#8217;t have the title of the property yet.<\/li>\n<li data-fontsize=\"16\" data-lineheight=\"24\">Construction\/Improvement Exchange- when There you sell a property and realize that the one they want to buy costs less than the one I relinquished and you need to pay tax on the differential.\u00a0So,\u00a0you can opt for this type of exchange that allows you to use the remaining funds to build or improve the property you want to buy.<\/li>\n<\/ol>\n<h2><span class=\"ez-toc-section\" id=\"How_much_capital_gains_exchange\"><\/span>How much capital gains exchange?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>If you want to apply like-kind exchange rule, it must be seen that the net market value and equity of the property purchased must be greater than or at least equal to the property sold. Otherwise, you will have to pay &#8220;boot tax&#8221; i.e tax on the difference in the value of your property and the property received in exchange. You can test this <a href=\"https:\/\/www.irstaxapp.com\/1031-exchange-savings-calculator-find-how-much-gains-you-can-defer\/\">1031 Exchange Calculator<\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_has_changed_in_1031_Exchange_Rule\"><\/span>What has changed in 1031 Exchange Rule?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p style=\"text-align: justify;\">As per the Tax Cust &amp; Jobs Act, <strong>starting Jan 1, 2018,<\/strong> following changes have come into play<\/p>\n<ol>\n<li style=\"text-align: justify;\">You can not opt for 1031 exchange on personal property assets.\u00a0What are those personal properties that are now out of 1031 exchange? The Bill excludes\u00a0trucks, heavy equipment, autos, farm machinery, artwork, collectables and intangibles like fast-food restaurant franchise licenses).<\/li>\n<li>If properties are held primarily for sale, such properties will not get benefit of 1031 exchange rule<\/li>\n<li>If you held virtual currencies, you can not invoke like-kind exchange rule because word <a href=\"https:\/\/www.irstaxapp.com\/can-irs-mine-bitcoin-tax\/\">property in section 1031<\/a> is replaced with &#8220;real property&#8221;<\/li>\n<\/ol>\n<h2><span class=\"ez-toc-section\" id=\"What_type_of_property_clearly_out_of_like-kind-exchange_rule\"><\/span>What type of property clearly out of like-kind-exchange rule?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Section 1031 is not applicable to all kinds of property or all kinds of exchange. Here are certain rules in this regard:<\/p>\n<ul>\n<li>You cannot trade partnership shares, notes, stocks, bonds, certificates of trust or other such items.<\/li>\n<li>A 1031 exchange is allowed only for Investment or business property an, not for personal property. In other words, you can\u2019t swap one primary residence for another or an investment property for a personal residence<\/li>\n<li>Property in a foreign country as\u00a0the original and replacement property must be within the U.S. to qualify under section 1031.<\/li>\n<li>Property that is a \u201cstock in trade.\u201d cannot be exchanged. So if you are a dealer in real estate or you are buying and selling at a\u00a0\u00a0frequency that IRS regard those transactions as business and properties as stock-in-trade dealers, then also you may not claim 1031 same kind exchange benefit.<\/li>\n<\/ul>\n<p>Houses built by a developer and offered for sale are stock in trade. If an investor buys \u201cfixer-uppers\u201d and sells them as soon as they are improved, the properties may be considered as stock in trade and cannot be exchanged.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>1031 exchange rule gets a heavy change vide the recently passed law-The Tax Cuts &amp; Jobs Act. So, one of the major provision of law that was used by a taxpayer to save on capital gains tax requires fresh look and understanding. Fact is that heavy lobbying by various NGOs for preventing any change to [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1123,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[8],"tags":[208,207,209,211,212,210,144,145],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/1116"}],"collection":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/comments?post=1116"}],"version-history":[{"count":0,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/1116\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media\/1123"}],"wp:attachment":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media?parent=1116"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/categories?post=1116"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/tags?post=1116"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}