Advantage and Disadvantages of 1031
Exchange
Advantages of 1031 Exchange:
1031 exchange is highly advantageous
to the taxpayer as it enables the taxpayers to sell
income, investment or business property and replace
with like kind replacement property without having to
pay the capital gain taxes on the transaction. Section
1031 of IRC is the basis of tax-deferred exchanges.
The “safe-harbor” Regulations was issued
by the IRS in 1991, which established approved procedures
for 1031 exchanges. With the issue of this regulations
tax deferred changes became easier, affordable and safer
than before. Prior to this regulation, such exchanges
were subject to challenge under examination on a variety
of issues.
Disadvantages of 1031 Exchange:
The main disadvantage of section 1031
exchange lies in the fact that it offers a reduced basis
for depreciation in the replacement property. The tax
on the replacement property is calculated on the basis
of the purchase price of the replacement property minus
the gain, which was deferred on the sale of the relinquished
property as a result of the exchange. Thus the taxpayer
needs to pay tax also on the deferred gain if he cashes
out of his investment.
Buy
Arizona Land Below Market Price
|
