A “Like Kind Exchange” under Internal Revenue Code §1031 can be used by a seller of real property to defer, and in some cases avoid, the payment of income taxes that would be currently due if the sale resulted in a gain for the seller. A seller is normally obligated to report as income any gain derived from the sale of real property in the tax year that the sale was completed. §1031 makes an exception to this requirement. In general, §1031 provides that no gain or loss is recognized where real property that was held for business use or for investment
purposes is exchanged for like kind property.
Exchanges under §1031 are common, but they are also complex and difficult. A primary reason for the difficulty is that it is rare for a seller to find a buyer who has qualified real property to exchange or, for that matter, who even wishes to be involved in any manner with an exchange under §1031. The most common method of avoiding this problem is through the use of qualified intermediaries in the manner described in IRS regulation 1.1031 (k)-1(g)(4).
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