In an I.R.C. Section 1031 Exchange, real property generally is “like-kind’ to all other real property. However, real property located in the United States and some U.S. territories is not “like-kind” to property located outside the United States.
Real property generally is defined by state law and may include easements, leases of 30 years or more, co-operative stock ownership, timber rights, water rights, oil, gas and mineral rights, options, and of course, a fee interest, to name a few.
Vacant land is considered “like-kind” to improved land and therefore may be exchanged with an apartment building, single family structure, commercial warehouse, etc., or any of the above mentioned forms of ownership, and vice versa.
Often, a taxpayer wishes to exchange into vacant land, upon which they will construct improvements. If the value of the improvements is needed in the exchange value, a “Build-To-Suit” Exchange can be used to accomplish this goal.
The obvious advantage of an I.R.C. Section 1031 Exchange is the deferment of federal and state ordinary (short term) and capital gains (long term) taxes. Other advantages include consolidation and diversification of investments, greater appreciation and leverage, greater cash flow, relocation of investments, and exchanging out of a low-basis investment into a high-basis investment. All of these advantages make a 1031 Exchange a great wealth building tool.
For additional information on 1031 Exchanges, please contact 1031 Exchange Specialists, Inc. at 609-398-1031 and also visit our website at http://www.1031ESI.com.
- George Christofely