1031 Exchange Dates Back to 1921
Section 1031 of the Internal Revenue Code ("1031 exchange") seems like it has been around since the beginning of time. The 1031 exchange has roots that date back to the year 1921. But, so many taxpayers are not even aware of the tax deferred exchange.
Why Does the 1031 Exchange Exist
When taxpayers find out about the 1031 exchange strategy they often ask why the 1031 exchange exists and why does it have all of the little quirky requirements like the 45 day identification rule or deadline.
Internal Revenue Code (IRC)
The 1031 exchange is the reference to Section 1031 of the Internal Revenue Code ("Tax Code"). Its part of the actual tax code. Taxpayers can defer payment of their income taxes as long as they continue to reinvest and stay invested via the 1031 exchange structure. The accummulated income tax consequenses would be due and payable upon the eventual sale of the property if the taxpayer chose not to defer their taxes with a 1031 exchagne.
Why Does the IRS Really Permit 1031 Exchanges
The 1031 exchange is usually viewed as a tax planning tool and only as a tax planning tool. While it certainly is that, it is so much more. It's a wealth building tool. But, the primary reason that Section 1031 exists is to keep the U.S. economy moving forward. The 1031 exchange is designed as a stimulous for the economy. It keeps investors invested. It keeps capital working hard in the economy.
Oh yeah, it helps defer the payment of income taxes, also.