Real-Estate Use of So-Called 1031 Exchanges, Survived the GOP Tax Overhaul

Robyn A. Friedman indicated this week at The Wall Street Journal Online that, “The tax overhaul enacted last year made a lot of changes, but one provision cherished by real-estate investors survived: so-called 1031 exchanges.

It’s the name for a tax break that lets you defer capital-gains taxes on the sale of a property used for business or investment if you reinvest the proceeds in another business or investment property. It’s often used by large real-estate investment companies, but individual investors—even those who own a single rental-income property—can take advantage of it as well. The ‘1031’ name refers to section 1031 of the U.S. tax code.

“‘You don’t have to be a professional investor to use this tax break to your advantage,’ says Andy Weiser, a real-estate agent with Better Homes and Gardens Florida 1st Real Estate in Fort Lauderdale, Fla. ‘You just have to be a smart investor.'”

The Journal item noted that, “The provision only applies to properties held for business or investment; a personal residence is not eligible for the tax break. You also must complete certain steps at set times. You have 45 days from the date of the sale of the old property to identify potential replacement properties. And you must acquire the new property no later than 180 days after the sale.”

Friedman added that, “Before the tax code overhaul this year, a variety of transactions—not just real estate—qualified for 1031 exchange treatment. These transactions, also called ‘like-kind exchanges,’ were allowed for any type of property used for business or held as an investment, including exchanges of personal or intangible property such as artwork or other collectibles. The new rules now limit exchanges to real estate only.

But many types of real estate qualify. An investor can exchange a single-family home held for investment in New York for a farm in Colorado or a small strip shopping center in Las Vegas, as long as all those properties are used for business or investment purposes.”

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