Tax Deferred Exchanges of Real Estate are Still Viable

Congress enacted sweeping changes to the tax code at the end of 2017.  Many of the revisions were designed to eliminate tax loopholes and reduce percevied unfairness in favor of wealthy individuals or companies.  One change which has not been clearly reported is the handling of like kind exchanges.  A like kind exchange allows for the deferral of capital gains tax on an appreciated asset that is sold so long as the proceeds of the sale are used to purchase a replacement property similar in nature to the asset being sold.

Tax deferred exchanges are no longer allowed for personal property such as heavy equipment, machinery or art work.  However, no changes were made to the tax code regarding real estate.  An owner of investment real estate (anything other than an owner occupied residence) has the ability to sell their real estate and avoid income tax on the appreciation in value which occurred during the period of ownership so long as another piece of replacement real estate is purchased with the proceeds.  This allows the owner to upgrade to a more valuable piece of real estate or to purchase a property of similar value which might be in a better location or less problematic to deal with and have no tax consequences for doing so.

Our firm has handled many Section 1031 like kind exchanges of real estate.  If you own investment property and are looking to sell it, feel free to contact us to discuss if a like kind exchange might benefit you.