What is a 1031 Exchange

Normally when we sell assets and make a profit, we are required to pay what’s known as capital gains taxes. However, the IRS allows individuals to defer this tax if instead of spending the money from the sale of the property you buy another piece of similar property. This is known as a 1031 exchange, which is a section within the IRS code that allows investors and businesses the option of avoiding certain types of taxes. The rules regulating these types of exchanges can get highly complex, and failure to fully comply can lead to a complete failure of the entire exchange. There are very specific time and property requirements that must be followed exactly. If you’re interested in selling an asset and want to avoid taxes, you should consider whether a 1031 exchange is right for you. A qualified investment, business, or estate planning attorney in your area should be able to provide you with the legal guidance you need to make an informed decision.