Have a Commercial Real Estate Property? New Tax Laws on Your Side for Use of 1031 Real Property Exchanges

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By Rana M. Gorzeck

The commercial real estate market breathed a sigh of relief when President Trump’s new tax bill, Public Law 115-97, preserved the use of 1031 transactions for commercial real estate properties.

Let’s review what a 1031 Like-Kind Exchange is defined by the IRS:

Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale.  IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange.  Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.

With the domestic commercial real estate market thriving, income-producing real properties are being exchanged again with increasing popularity.  Congress did not allow the continuation of 1031 exchanges for personal property, such as vehicles, jewels, and stocks, but the capital gains tax will continue to be deferred when parties exchange like properties—as long as the strict 1031 rules are met.

As a result, in this increasingly active real estate market, we are witnessing a revival of 1031 exchange transactions at our firm.

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