Taxpayers planning to sell, purchase, or construct real property should review the possibility of conducting an Internal Revenue Code Section 1031 like-kind exchange to defer federal and general state income taxes on the capital gain. To qualify, property owners must exchange real or personal property (relinquished property) for other property of a like-kind (replacement property).
“Like-Kind” has reference to the nature or character of the property and not to its grade or quality. The fact that any real estate involved is improved or unimproved is not material. Unproductive real estate held by one other than a dealer for future use or future realization of the increment in value is held for investment and not primarily for sale.
The fact is real estate that can be exchanged under IRC Section 1031 is “like-kind”, is extremely broad and is supported by numerous Revenue Rulings and Private Letter Rulings that have addressed this subject.
By utilizing the 1031 tax exchange you will be able to increase your, leverage, cash flow diversification, consolidation, and increase depreciation.