In a 1031 exchange, a person who acquires business or investment property from a taxpayer, sells that property, uses the proceeds therefrom to acquire like-kind business or investment property for the taxpayer, and then transfers the like-kind property to the taxpayer. A taxpayer who uses a qualified intermediary to conduct a 1031 exchange can defer payment of capital gains tax on the sale of his or her property.
See, e.g. Teruya Bros., Ltd. v. C.I.R., 580 F.3d 1038 (9th Cir. 2009).
Definition from Nolo’s Plain-English Law Dictionary
In a 1031 exchange, a neutral third party who holds the proceeds of the sale of a relinquished property until replacement property is purchased with those funds. This prevents the investor from receiving the funds during the 1031 transaction, and so avoids taxes.
Definition provided by Nolo’s Plain-English Law Dictionary.
August 19, 2010, 5:22 pm