I learned something new today…it was about 1031 Exchanges. Allow me to share.

There is a provision of the Federal Income Tax Code that allows both companies and individuals to exchange property of a like-kind without incurring any liability.

An exchange of this kind does not involve cash exchange. So it would be unfair for the taxpayer to have to pay tax on unrealized gain or “paper” gain. The taxpayer’s investment is the same…only the form changes.

So what this means is the taxpayer is deferring his or her tax liability. When this asset is eventually sold for cash…THEN the gain realized is subject to tax.

Sounds fair to me!