Help Your Clients Defer Real Estate Sales Capital Gains

Capital gains tax obligations arising out of an investment property sale may be deferred. Section 1031 of the Internal Revenue Code provides that no gain or loss is recognized when real property held for productive use in trade or business, or for investment (Relinquished Property), is exchanged for like-kind real property (Replacement Property). The Replacement Property must also be held for productive use in trade or business, or for investment. When the Replacement Property is acquired before the closing of the Relinquished Property sale, it is referred to as a reverse exchange. Read this practice note to learn more about 1031 exchanges and the mechanics of reverse exchanges.

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Related Content

• Real Property 1031 Exchanges
  Delve into this practice note for guidance on 1031 Exchanges, including information on the transactional process, timing requirements, and the definition of “like-kind” property.

• Real Property 1031 Exchanges Video
  Watch this video for an overview of 1031 exchanges by Spencer Compton (Senior Vice President and Senior Counsel at Commonwealth Land Title Insurance Company's National Commercial Services Division) and Marie Flavin (Senior Vice President and the Northeast Regional Manager at Investment Property Exchange Services, Inc.).

• 1031 Exchange Cooperation Clause (Forward)
  Use this clause in a commercial purchase and sale agreement when the seller intends to structure the transaction as the first step of a 1031 exchange (“forward exchange”).

• 1031 Exchange Cooperation Clause (Reverse)
  Use this clause in a commercial purchase and sale agreement when the buyer intends to structure the transaction as the first step of a 1031 exchange (“reverse exchange”).

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