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In the Tax Cuts and Jobs Act (TCJA), Section 1031 was amended to apply only to exchanges of real property, leaving taxpayers questioning what qualifies as “real property” under these new rules. The Internal Revenue Service (IRS) and Treasury Department addressed these questions as well as clarified other areas of this tax rule in its final regulations released in June 2020. Below is an overview of the final regulations and key considerations property owners should keep in mind related to the exchange rules.
Real business or investment property, including land, and generally anything permanently built on or attached to it. The following qualifying factors were also outlined under the final regulations:
Under the final regulations, the following timing requirements apply for Section 1031:
These additional factors should also be considered related to Section 1031:
Real estate investors seeking additional tax-deferral opportunities should also explore opportunity zones introduced by the TCJA. Opportunity zones is a tax incentive that offers three key tax benefits, including the temporary deferral of taxes on previously earned capital gains, a basis step-up of previously earned capital gains invested and a permanent exclusion of taxable income on new gains.
Doeren Mayhew’s tax advisors work closely with clients to help them understand and navigate complex tax rules, such as Section 1031. To learn more about these exchange rules or to obtain an analysis on whether your property qualifies, contact us today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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