Understanding 1031 Exchanges
A few facts about 1031 Exchanges

1031 Exchanges go by many names.
The term ‘1031 Exchange’ comes from the section number— 1031(a)—of the Internal Revenue Code that governs it. Other names for this type of transaction are Like-Kind Exchange, 1031 Like-Kind Exchange, swaps, Starker transactions, 1031 Tax-Deferred Exchange and 1031 Tax-Free Exchange.

1031 Exchanges are nothing new.
Since 1921, Congress has encouraged companies to reinvest in their businesses by deferring taxes through Like-Kind Exchanges. Over the years, the U.S. Treasury Department has clarified and structured Section 1031 of the Internal Revenue Code, making LKE programs readily available to businesses of all sizes.
For example, Private Letter Ruling 2002-36 authorized businesses to perform LKEs in an online environment. This eliminated the need for the traditional, time and resource intensive paper-based process, and made LKE programs an option for businesses that couldn’t otherwise afford them. In 2003, the Treasury provided Revenue Procedure 2003-36, which provided further clarification and guidance for managing repetitive, or program, Personal Property Like-Kind Exchanges.

1031 Exchanges are a simple idea.
1031 Exchanges are simply one way the U.S. Treasury Department attempts to stimulate the economy. Businesses don’t "realize" any gain when replacing assets because their original investment is still tied up in the new asset. By not taxing you on the gains, the tax code allows you to roll over 100% of the proceeds received from the sale of an asset into the purchase of one or more like-kind assets.

1031 Exchanges follow a basic process.

1. A business assigns the sales rights of an asset to its Qualified Intermediary (QI).
2. The QI "sells” the asset.
3. Revenues from the sale are directly deposited with the QI.
4. The QI “purchases” the replacement asset for the owner and assigns ownership.
5. The business defers taxes on the gain from the original sale, indefinitely in most cases.

If it’s depreciable, it’s eligible.
If you depreciate and replace business assets with others just like them, you can do so in a 1031 Exchange. Some types of assets eligible for 1031 Exchanges:

• Personal property
  
  
  • Business equipment
  
  
  • Construction equipment
    
    
  • Fleet vehicles
    
    
  • Tractor/Trailers
    
    
  • Airplanes
    
    
  • Rental cars
  
  
  
  

• Real Property
  
  
  • Land
    
    
  • Buildings