1031 Exchanges - You REALLY need to talk to your accountant!

1031 exchanges - they aren't for everyone. As a matter of fact they are only for a very few. The Internal Revenue Code Section 1031 states:

"No gain or loss shall be recognized if property held for productive use in trade or business or for investment purposes is exchanged solely for property of a like-kind."

To make a long story short,(and noting that I am neither a 1031 Specialist or an Accountant) the 1031 exchange is a tool for investors only. A 1031 exchange can not be used for selling one's personal residence. The rules for a 1031 exchange are very strict and precise. The property being exchanged has to have been an investment property and needs to be exchanged for another investment property within a specific amount of time.

Needless to say I am writing about this because recently several homeowners have mistakenly thought that they could circumvent the 2 year residency rules (necessary to benefit from the Capital Gains home sales tax break) by participating in a 1031 exchange. Personal residences do not qualify as investment properties. After conferring with accountants as well as 1031 Qualified Intermediaries it is once again important to say - consult with an accountant, 1031 exchange specialist, etc before thinking that you have found the perfect tax loophole. 1031 exchanges are a great tool - but they are for investors investing in investment properties only.

For more info go to:

http://1031.org

http://starker.com