By Karl Chiao
Section 1031 of the IRS Tax Code (commonly referred to as a 1031 Exchange) is a tax strategy often used in the real estate world to defer long term capital gains when one sells their real property. Basically, how this works is when a person sells real property that includes a capital gain, that person can then reinvest that money by taking the proceeds from the sale and buying another piece of property "of like kind" within a specified time to replace the piece sold — and thus deferring any possible tax gains.
While the use of the 1031 exchange has been around in the real estate world for many years, most people are not aware that the 1031 exchange can also be applied to the sale of collectibles as long as it satisfies certain IRS requirements. Here are the basics of the 1031 exchange as it applies to collectibles:
While the concept of a 1031 exchange is fairly straightforward, specific rules involving the 1031 exchange in each individual's situation can be quite a bit more complicated. It is essential that you consult with a certified tax professional before you decide to do the exchange.
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