1031 Tax-Deferred Exchanges

As in many parts of the country we here in Idaho have seen a lot of farmland sold and developed for residential subdivisions or commercial pads. The IRS allows some tax advantages for farmers and anyone else looking to sell real property and to partially avoid and delay certain taxes.

In the example of a farmer, a husband and wife can sell a 200 acre farm and avoid paying taxes on the sale of a portion of their property and defer the remainder. The portion of the home that is the residence can avoid tax completely if the owners have lived in and occupied the home as their primary residence 2 out of the previous 5 years. Up to $250,000 per person or $500,000 for a couple can be excluded from taxation. The remaining farm land can be sold and the sales proceeds can be deferred using the 1031 tax deferred vehicle.

The 1031 Tax Deferred Exchange is also known as a Like-Kind Exchange and is a way of structuring a sale of certain kinds of property so that the seller’s profit or gain is not currently taxed. Instead, the property that is sold is replaced with another “like-kind” property. If the transaction is properly structured, the seller’s profit or gain is deferred to a future date.

In the example of the farmland sale above, a farmer can sell the remainder fo the farmland (separate from his residence) and use the 1031 Tax Deferred Exchange in deferring the payment of any tax obligation.

Section 1031 of the Internal Revenue Code, 26 U.S.C. § 1031, provides:

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.”
Find out what you need to know about 1031 Tax Deferred Exchanges such has when you have to purchase a “replacement” property and how to avoid some of the pitfalls. You can setup a 1031 exchange and have all the proper paperwork you need by going to Pioneer 1031 Tax Deferred Exchanges.

If you need to find a replacement property and you want to search every residential, vacant land, commercial or business listing listed in the Southwest Idaho Intermountain MLS go to Search the MLS