1031 Exchanges Essay

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Final Paper “1031 Exchanges – Insight for the real estate investor” This paper is written to provide a reasonably comprehensive overview of Section 1031 of the IRC as it pertains to real estate transactions, and to offer some thoughts on the wealth-creation advantages that 1031 Exchanges offer. For the greater part of the last decade, we in the United States have been witness to a consistently appreciating real estate market. Sometimes it seems that almost anyone who has purchased a house, piece of property, or other real estate type investment has done very well. I personally can point to a few examples where friends of mine have made several hundred times their first home equity investment. In sales of primary homes there is a tax…show more content…
Section 1031 of the IRS tax code can be viewed in Exhibit 1 at the end of this paper, for practical reasons I would like to offer a basic example in which an investor(s) can benefit from the tax advantages of Section 1031. John and Jane own and rent out a duplex in Atlanta. They are getting older now and are planning to retire and to move to Miami. John and Jane would like to sell the Atlanta Duplex and purchase a small commercial building next to the lovely condo they bought on the beach. The main issue is John and Jane can only afford to buy this building if they are able to capture all of the existing equity in their Atlanta duplex. To avoid (defer) a taxable event when they sell their duplex John and Jane can utilize Section 1031 of the IRC. There are, however, a few hoops that John and Jane must jump through to qualify. First, the properties being exchanged must be “like-kind”, “ this criteria is defined by its use, not its characteristics. For example,
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