“Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. 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 Section 1031 is tax-deferred, but it is not tax-free.”
The quote above is from a fact sheet on the IRS.gov website. Many people who are looking to sell a piece of real property that they have owned for awhile will ask a question about 1031 exchanges, which they may have heard of but do not completely understand. As you can see from the first line it specifically pertains to business or investment property. Scarlett Property Management and Scarlett Real Estate’s knowledge of investment properties can provide insight into how real estate investment can provide a great ROI, diversify and be part of a well balanced portfolio. When making decisions about tax and and its consequences always consult a tax professional.