Section 1031

DEFINITION of 'Section 1031'

A section of the U.S. Internal Revenue Service Code that allows investors to defer capital gains taxes on any exchange of like-kind properties for business or investment purposes. Taxes on capital gains are not charged on the sale of a property if the money is being used to purchase another property - the payment of tax is deferred until property is sold with no re-investment.

BREAKING DOWN 'Section 1031'

The idea behind this section of the tax code is that when an individual or a business sells a property to buy another, no economic gain has been achieved. There has simply been a transfer from one property to another. For example, if a real estate investor sells an apartment building to buy another one, he or she will not be charged tax on any gains he or she made on the original apartment building. When the investor sells the original apartment building and purchases a new one, the value used from the original to buy the new one has not changed - the only thing that has changed is where the value is being held.

RELATED TERMS
  1. Section 1250

    A section of the United States Internal Revenue Service Code ...
  2. Section 1231 Property

    A tax term relating to depreciable business property that has ...
  3. Property Tax

    A tax assessed on real estate by the local government. The tax ...
  4. Like-Kind Exchange

    A tax deferred exchange that allows for the disposal of an asset ...
  5. Form 4797

    A tax form distributed by the Internal Revenue Service (IRS) ...
  6. Reverse Exchange

    A type of property exchange wherein the replacement property ...
Related Articles
  1. Personal Finance

    How To Prevent A Tax Hit When Selling A Rental Property

    Rental property ownership has its benefits but when selling you can face a big tax hit. Thankfully there are ways to reduce your capital gains exposure.
  2. Managing Wealth

    How Does a Tax-Free Exchange Work?

    In regards to the sale of property, particularly in real estate, a 1031 exchange is increasingly being recognized for its tax benefits to investors of all levels.
  3. Trading

    Trade Properties To Keep The Taxman At Bay

    Like-kind exchanges can mean a much lower tax bill on real estate for savvy investors.
  4. Personal Finance

    Sell Your Rental Property For A Profit

    Being a landlord can be taxing, especially when you want to sell. Find out how to reduce your burden.
  5. Personal Finance

    Your Property Tax Assessment: What Does It Mean?

    The amount of a property tax bill is based on the property’s value, the exemptions it qualifies for, its use and the local property tax rate.
  6. Personal Finance

    Getting U.S. Tax Deductions On Foreign Real Estate

    If your home or second home is not in the United States, you can still get U.S. tax deductions. How many and what kind depends on whether you also rent it.
  7. Personal Finance

    Your Property Tax Assessment: What Does It Mean?

    Property taxes are a primary source of revenue for governments, and they’re a big expense for homeowners. They can vary widely depending on where you live.
  8. Personal Finance

    The 7 Best States For Property Taxes, and Why

    Understand why some states have high property taxes while others have low property taxes. Learn about the states with the lowest property taxes.
  9. Markets

    What Is Section 1231 Property?

    Section 1231 property is depreciable business property that’s held for a year or longer.
  10. Investing

    How Property Rights Affect Economies

    Property rights are laws governments create that enable investors to control, benefit from, and transfer property.
RELATED FAQS
  1. How does securitization play a role in the implementation of PACE financing?

  2. How is Net Operating Income (NOI) used in real estate?

    Find out more about net operating income, what it measures and how it is used to analyze a real estate property's return. Read Answer >>
  3. What criteria does a property need to meet to be considered an 'investment grade' ...

    Learn what it takes for institutional investors to consider a property "investment grade," such as real estate investment ... Read Answer >>
  4. What is the justification for allowing deferred tax liabilities?

    Understand the justification for allowing deferred tax liabilities. Learn the reasoning behind why a company would want to ... Read Answer >>
  5. What is the difference between income tax and capital gains tax?

    The conceptual difference between income tax and capital gains tax is that income tax is the tax paid on income earned from ... Read Answer >>
  6. In which US cities do high-income earners pay the most tax?

    See which U.S. cities punish high net worth individuals the most through the highest levels of income taxes, property taxes ... Read Answer >>
Hot Definitions
  1. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  2. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  3. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  4. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  5. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  6. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
Trading Center