In a traditional sale, an owner traditionally recognizes a gain, taxed at either regular or capital gains
rates. If a seller chooses to exchange a business or investment property for another business or investment property of
a like-kind, no gain or loss is recognized under Internal Revenue Code Section 1031.
There are several types of exchanges including the following:
1. Simultaneous Exchange
2. Delayed Exchange: STRICT LIMITATIONS
3. Build-to-Suit Exchange: (Improvement or Construction) allows improvements from proceeds of
exchange
4. Reverse Exchange: acquire exchange property before relinquishing original investment
(safe harbor if properly conducted, reasonable time)
5. Multi-asset Exchange: Both real and personal property
Benefits of such a transaction include
the following:
- May maintain an equity position
- Taxes may be deferred or eliminated by this type of transaction,
- Gain from depreciation may be postponed,
- Owners who are burned out or would like a new or bigger opportunity can exchange their
business, home or other property for a business and/or real property, - Does not require financing
References
United States Internal Revenue Service, Publication:
Form 8824, Like-Kind Exchanges, http://www.irs.gov/pub/irs-pdf/f8824.pdf
(November 25, 2011, last updated February 25, 2011).
Small Business Review, A Primer on 1031
Exchange, Todd R. Pajonas,,
http://smallbusinessreview.com/finance/A_Primer_on_1031_Exchanges/ (2011).
*This article is not deemed to be legal or tax advice provided by either the author or Sunbelt, it
is merely the opinion of the author at the time of publication.
To learn more, please contact the author: Michelle Olmstead, Sunbelt Business Broker, attorney and
entrepreneur, to assist you in your plan to buy, sell or exchange a business. Michelle Olmstead, molmstead@sunbeltmidwest.com or (612) 354-0539.
Sunbelt Business Brokers
Minneapolis – St Paul – Milwaukee – Chicago
