Like-kind exchanges under Section 1031 are often referred to as "tax-free exchanges." This is a misleading description. Section 1031 provides an exception only from current recognition of realized gain.
IRC 1031 Like-Kind Exchanges. Under federal tax rules, gain or loss is recognized upon the disposition of property, including dispositions involving an exchange of property.1 Internal Revenue Code Section 1031 is an exception to the general rule...
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 NOTE: Section 1031 is tax-deferred, but it is not tax-free.
Although Section 1031 of the Internal Revenue Code (IRC) dates to the 1920s, exchanges under the original restrictions could only be completed as a simultaneous swap of properties among two or more parties.
PDF: Like Kind Exchange Treatise.Section 1031(f)(1) precludes nonrecognition when a taxpayer exchanges like-kind property with a related person if either party disposes of property acquired in the exchange within two years.
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An IRC Section 1031 like-kind exchange lets you defer capital gains -- if you do it right.For the complete list of conditions, go to www.irs.gov/pub/irs-drop/rp-02-22.pdf.
Mutual ditch or irrigation companies remain eligible for like-kind exchange treatment so long as the company is treated as exempt from income tax under 501(c)(12)(A). Real property located outside of the U.S. will not qualify as real property of a like kind for 1031 purposes.
