By David Pope

The Internal Revenue Code Section 1031 provides for the opportunity to defer the payment of capital gains tax liability on the sale of real property by reinvesting the proceeds from the relinquished property into another similar asset using a qualified intermediary.  The Tax Cuts and Jobs Act signed into law on December of 2017 with an effective date of January 1-2018 substantially changed the IRS Code Specific to Section 1031 now being titled, “Exchange of Real Property Held for Productive Use or Investment.” The act now limits the ability to exchange assets to only real estate.  The proceeds from the sale of a property held as an investment must be reinvested into a property that is also held as an investment and must involve a qualified intermediary. The qualified intermediary works with the real estate agent handling the money flows so the person/people doing the 1031 exchange will qualify to defer their capital gains tax to a later date.  Exchanged properties can be land, apartments, or other various real estate so long as the properties being sold and purchased are both held for investment. Someone wanting to sell their primary residence and exchange into an investment asset would not qualify for a 1031 Exchange.

Contrary to what many people may think or state, a 1031 exchange DOES NOT eliminate the capital gains tax liability.  The tax is only deferred until such time that the sale of an acquired investment asset is no longer exchanged to another property.  At this point, any deferred capital gains will become due unless potentially dealt with through estate or other financial planning. 

**Please note — Nothing in this article should not be considered tax or legal advice.  Any buyer and/or seller interested in learning more about exchanges should speak with their tax adviser, financial advisor and/or attorney.

 GIVE US A CALL regarding more information on how to buy or sell farm, buildable or developable land using a 1031 Exchange – DAVID POPE  651-249-7150

David Pope is a member of the REALTORS Land Institute

The Realtors® Land Institute, “The Voice of Land”, continually strives to maintain its status as the acknowledged leader for all matters pertaining to the land real estate profession. RLI endeavors to remain the essential membership organization for the extraordinary real estate professionals who broker, lease, sell, develop, and manage our most precious resource: the land. The Realtors® Land Institute, provides the expertise, camaraderie, and valuable resources that are the foundation for all land real estate professionals to become the best in the business.

“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”- Franklin D. Roosevelt, U.S. President