What is a 1031 Like Kind Exchange?

Thanks to US Tax Law IRC Section 1031, a properly structured 1031 exchange allows an investor to sell certain assets (such as heavy equipment, trucks, etc), to reinvest the proceeds in a new property and to defer all capital gain taxes. IRC Section 1031 (a)(1) states:

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

 

Like Kind Exchange Example

The following example helps to illustrate the potential savings associated with a 1031 Like Kind Exchange.

 

Like Kind Exchange Example Table

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeding with a Like Kind Exchange

As you prepare your assets to be sold and begin the process to replace with similar new equipment, it is best to contact a tax professional to see if a 1031 Like Kind Exchange is ideal for your company, and to help you to create a properly structured program.