Can you 1031 into a development project?

The simple answer is yes, but the process can be complex. In general, the IRS prevents using funds from a 1031 exchange for new construction projects; however, they do have guidelines under which it can be done. In the right circumstance, under IRS guidelines, the taxpayer can defer capital gains taxes from that sale.

What property qualifies for Section 1031 treatment?

As mentioned, a 1031 exchange is reserved for property held for productive use in a trade or business or for investment. This means that any real property held for investment purposes can qualify for 1031 treatment, such as an apartment building, a vacant lot, a commercial building, or even a single-family residence.

Do rental properties qualify for 1031?

The IRS has determined that many forms of real estate can be used for a 1031 exchange including any property used for a business which includes a store, manufacturing facility or office building. Investment property can also be used for a 1031 exchange, which includes rental properties.

What does 1031 exchange mean for real estate?

When you sell a property, you are disposing of your tangible real estate or what the IRS refers to as “real property.” A 1031 exchange allows you to trade or exchange “for property of like-kind, which is to be held either for productive use in a trade or business for investment,” according to Internal Revenue Code (IRC) Section 1031 (a) (1).

Can You 1031 exchange a farm into a duplex?

So farm or ranch owners can 1031 exchange into another farm, a duplex, a commercial building, or any other interest in real estate.

Who is eligible for a 1031 tax deferral?

Owners of investment and business property may qualify for a Section 1031 deferral. Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031.

What kind of property is excluded from 1031?

(iii) Property held by the taxpayer primarily for sale to customers in the ordinary course of a trade or business. Such property, including any real estate which qualifies as inventory, is excluded from 1031 treatment and, upon sale, is taxed at ordinary income rates.