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Changes in 1031 Exchanges


Do you buy and sell property? If so you're probably using the tax advantages of Section 1031 of the Internal Revenue Code, which allows sellers of property to forgo capital gains taxes as long as they buy similar property within a certain time frame.

But the Tax Cuts and Job Act of 2017 created new limitations on what may apply under Section 1031 in the future. In the past personal property could be mixed with real property; no more.

As an example, an old flower shop in my town is up for sale. The owners want to sell the building, the business, the furnishings and inventory, as a single package.

Prior to TCJA you could include this entire property as a single package under Section 1031, but that is no longer the case. To sell this property a price must be set separately for the building/land, and for the contents. Gains may be deferred on the real estate but not the personal estate.

The purpose of this property is to restrict the property owner's ability to defer capital gains taxes.

Be warned! If you become involved in the purchase or sale of real estate containing personal estate, they must be separated for tax purposes. Particularly for the seller, this could raise the cost of the transaction, so take it into account. Or call us! You can count on our best practices tax planning.


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