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Deferring Income Tax on Sale of Investment Real Property

If you are selling appreciated business on an investment/real property, IRC Section 1031 allows you to postpone paying income tax on the gain if you reinvest the proceeds in similar property.

Section 1031 exchanges are generally available to individuals, corporations, partnerships (general or limited), limited liability companies and trusts who own investment or business property.

The exchange is either a direct exchange of business or investment property for another, or the more typical scenario where you sell your property to a third party. A qualified intermediary holds the proceeds of the sale and you have 180 days to purchase replacement property(ies) using all or a portion of the sale proceeds. The latter scenario is often referred to as a "Starker Exchange."

Receipt by you of cash, relief from debt, or property that is not like-kind may trigger some taxable gain to you. The rules are complicated and circumstances differ for each transaction. If you plan to sell appreciated business or investment real property, and before you sign the contract, you should definitely consult with your attorney or tax advisor to discuss this option.

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