1031 "Like Kind" Exchange

In 1990, the IRS came out with rules on Deferred Exchange of property. Section 1.1031 of the Internal Revenue Code laid out in detail the procedure for turning a sale and purchase type transaction into an exchange.

Under the Internal Revenue Code Section 1031, the owner of business or investment Real Estate can buy and sell property and by following a few simple rules deffer their capital gain tax. IF you exchange investment property SOLEY for Investment Property of a LIKE KIND, however, for real property the definition of Like Kind is very broad. It includes Land, Rental and Business property and either can be exchanged for the other.

Prior to this the trading or exchanging of property had gone on for many years with no clear IRS rules on how those transactions would be taxed.

It's a way for owners of business and investment Real Estate to sell their property and buy other like kind property without paying the Capital Gains Tax.