The sale of appreciated real property held for investment purposes can result in substantial tax liability. Gain from the sale of investment property held for a period of less than one year will be taxed as ordinary income and is therefore subject to federal income tax as high as 35%. However, if the investment property is held for a period of more than one year, the gain is subject to the more favorable capital gains tax rate of 15%. Internal Revenue Code (IRC) Section 1031 allows for deferral of the recognition of capital gains as long as replacement property is purchased with the proceeds from the relinquished property. An investor can dispose of investment property, use all of the equity gained to purchase replacement property, and defer the recognition of capital gain. The investor can effectively defer the payment of capital gains tax if the following two requirements are met: First, the investor must acquire “like-kind” replacement property. Secondly, the investor cannot receive any cash or boot. Any cash or boot received by the investor will be taxable.

The “like-kind” requirement is a complex and often confusing area of taxation. The Esquire Group team will be able to determine how, and if, this requirement applies in your particular situation and explain the intricacies of these types of transactions.