Like Kind Exchanges

Generally, if you exchange real estate solely for business or investment property of a like-kind, no gain or loss is recognized under Internal Revenue Code Section 1031. For real estate investors what this means is you can exchange a property with no tax consequence when a sale may produce a taxable gain.

Real estate properties generally are of like-kind, regardless of whether the properties are improved or unimproved. However, real property in the United States and real property outside the United States are not like-kind properties.

Unless you have a network of associates with properties to exchange with you, you'll need a third party, a qualified intermediary to assist with the transaction. Practically any sale can be transacted as an exchange with a QI involved.

The Qualified Intermediary (QI) serves a crucial function under the Internal Revenue (IRS) Code. The QI will acquire the trade up property, exchange properties with the investor, and in turn sell the original investment property to a buyer

Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, other securities or evidence of indebtedness, or certain other assets.

Ref: http://www.irs.gov/businesses/small/industries/article/0,,id=98491,00.html

This information is deemed reliable but not gauranteed. It was written and is provided by Fayettevlle NC homes blog using the above references as a guide. Because tax laws change more often than they should verify for yourself or ask your tax professional for guidance.