Section 1031 Real Property Like-Kind Exchanges

This course provides a study of tax-deferred real property transactions under Section 1031 of the Internal Revenue Code. Financial advisors must often consider their clients’ real estate investments as a source of income—whether for growth during lifetime or for transfer at death. Section 1031 provides a mechanism for exchanging one piece of real property for another while deferring capital gains tax, thereby keeping any capital gain available for further investment instead of being reduced by an immediate tax bite. When appreciated real property is sold outright rather than exchanged, the value of the appreciation would generally be subject to immediate capital gains tax. Section 1031 exchanges allow trading appreciated real property for other pieces of real property in a tax-deferred manner. When accomplished according to strict rules, such an exchange allows an investor to roll all proceeds, including those associated with property appreciation, into replacement property with no immediate tax bill on the gain. Because such a deferral can be so valuable to the investor and keep gains from immediately going into the tax coffers, the exchange transfer rules are strict and must be followed precisely. Even a simple mistake in a transfer can cause an investor to lose all of an intended tax-deferral benefit. In laying out the framework of Section 1031 transfers, this course covers: • The tax benefits of Section 1031 tax deferral • Types of eligible property and types of Section 1031 exchanges • Processes and requirements for achieving full or partial tax-deferral • IRS timing deadlines and reporting requirements