The IRS Code (1031 Exchange) allows commercial real estate investors to defer tax liability on sold properties. This code states that “no gain or loss shall be recognized on the exchange property held for productive use in a trade or business or for investment if such property is exchanged solely for a property of like kind which is to be held either for productive use in trade or business or for investment.”
In order to be able to defer the tax the following requirements and qualifications must take place:
- Qualifying property–the real estate being sold must be held as an investment or be used in a trade or business.
- Timing of an exchange–the sale and purchase of the real estate do not need to occur simultaneously. The exchange can be delayed for up to 180 days. The code does require that the investor identify the potential new real estate within 45 days.
For more information on Code 1031 visit this article.