Section 1031, Tax Deferred Exchanges

One of the hottest tax planning opportunities available today is the tax deferred (or, if you prefer, tax free) exchange.

When the traditional “swap” of property cannot be accomplished because the purchaser of your property doesn’t own property that you want to receive, you should consider the Section 1031 delayed exchange.

Done properly, you have up to 180 days after you sell your qualifying property (e.g., property held for productive use in a trade or business or for investment) to reinvest in qualifying replacement property. Real and personal property qualify, but proceeds from the sale of real property must be reinvested in real property, and proceeds from the sale of personal property must be reinvested in personal property.

Interestingly enough, proceeds from the sale of the goodwill of one business may not be reinvested in the goodwill of another business tax free under Section 1031.

Make certain that you obtain the correct answers to your questions about tax deferred exchanges prior to the sale of your property. After the sale, it’s too late.