TM 1031 Exchange
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A Brief History of the 1031 Exchange

The ability to defer capital gain taxes on the sale of property has been around since 1921. In 1935 the Board of Tax Appeals approved the first modern tax-differed exchange using Qualified Intermediaries.

The 1954 Amendment to the Federal Tax Code changed Section 112 (b)(1) number to Section 1031 of the Internal Revenue Code and adopted the present day definitions and description of the tax –deferred like-kind exchanges.

The Starker family tax-deferred like-kind court decision established the need for regulations regarding delayed tax-deferred exchanges. This now famous case prompted the United States Congress to eventually adopt the 45 calendar day Identification Deadline and the 180 calendar day Exchange Period as part of the Deficit Reduction Act of 1984.

The Tax Reform Act of 1986 eliminated accelerated depreciation and put like-kind exchanges in the limelight as being one of the few income tax benefits left for real estate investors.

The Revenue Reconciliation Act of 1989 disqualified like-kind exchanges between domestic and non-domestic properties and placed a two year holding period requirement on related party exchanges.

Revenue Procedure 2000-37 gave investors guidelines on how to structure reverse tax-deferred like-kind exchanges transactions.

Revenue Procedure 2002-22 provided investors with additional like-kind replacement property options that had not existed before- Co-Ownership of Real Estate (CORE). CORE is most frequently referred to as Tenants in Common or TIC investments.

Revenue Procedure 2005-14 made effective on January 27, 2005 made it possible for the first time for homeowners to use the tax-deferral mechanism of Section 1031 on their primary residence, if specific steps outlined in the code were carefully followed.

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