Landlords Can Defer Property Sale Taxes Through 1031 Exchanges, Then Heirs May Avoid the Bill
Section 1031 allows landlords to defer capital gains by exchanging like-kind rental properties, and Section 1014 resets inherited property's basis at death, potentially eliminating the deferred tax. The article illustrates a landlord whose $400,000 property with $250,000 depreciation is exchanged for $1.4 million, creating a $1.25 million gain that would otherwise trigger federal tax. Missing the 45-day identification deadline can make the deferred gain taxable immediately.
Section 1031 dates to the Revenue Act of 1921. Since the Tax Cuts and Jobs Act, it applies only to real estate. U.S. investment property can generally be exchanged for other U.S. real property, such as an apartment building for a warehouse, land, or retail center. Deferred exchanges require a qualified intermediary to hold proceeds, written replacement identification within 45 days, and closing within 180 days. Keeping cash or failing to replace debt creates taxable boot.
Section 1014 sets an heir’s basis at the property’s fair market value on the death date. That can eliminate deferred gain. In the example, a $400,000 property with $250,000 depreciation has a $150,000 adjusted basis; exchanging it for $1.4 million creates a $1.25 million gain and about $310,000 in federal tax before state taxes.
Count? First paragraph: Section(1) 1031(2) dates(3) to(4) the(5) Revenue(6) Act(7) of(8) 1921(9). Since(10) the(11) Tax(12) Cuts(13) and(14) Jobs(15) Act(16), it(17) applies(18) only(19) to(20) real(21) estate(22). U.S.(23) investment(24) property(25) can(26) generally(27) be(28) exchanged(29) for(30) other(31) U.S.(32) real(33) property(34), such(35) as(36) an(37) apartment(38) building(39) for(40) a(41) warehouse(42), land(43), or(44) retail(45) center(46). Deferred(47) exchanges(48) require(49) a(50) qualified(51) intermediary(52) to(53) hold(54) proceeds(55), written(56) replacement(57) identification(58) within(59) 45(60) days(61), and(62) closing(63) within(64) 180(65) days(6
... No extra. Need maybe no markdown? Plain text. Good. Double-check "under 120 words total" for EXPANDED. We have 112. Good. "2 short paragraphs" yes. "entirely original wording, never copying source phrasing." We used "Tax Cuts and Jobs Act" proper noun, "qualified intermediary", "boot", "Section 1031", "Section 1014" necessary. "like-kind" not used. "stepped-up basis" in context? That's common but source says resets basis. Fine. "swap" maybe source uses "swap"; but common. Could avoid "swapped" maybe "exchanged". But source uses "swap" in headline. We can use "exchanged" to be safer. Let's adjust first: "U.S. investment property can generally be exchanged for other U.S. real property..." Good. "Cash kept or debt not replaced is taxable boot." Source says "Any cash you keep, called 'boot,' is taxed." Our phrasing okay. "debt not replaced" source says replace mortgage debt. Good. Need maybe "Section 1031 began with Revenue Act 1921" source says "from Revenue Act of 1921". Fine. Pot