The capital gains deferral Section 1031 provides to the taxpayer may, at first, seem to represent a gift from the United States government, however it is, in reality, closer to an interest-free loan, because there is an expectation that the taxpayer will repay the extra money gained from the tax deferral by paying capital gains taxes on the subsequent sale of a replacement property. Additionally, this interest-free loan is one that may be kept indefinitely; an investor can elect to conduct any number of 1031 exchanges before ultimately deciding to make an outright sale, on which the investor must pay capital gains taxes.
1031 exchanges aren’t just for land and buildings, either. You can make a 1031 exchange on any sort of real estate you are holding for investment in your business or trade, and certain kinds of personal property as well, from a backhoe or crane to an aircraft or collector car. As a matter of fact, 1031 exchanges are particularly advantageous for those who have money in antiques or collectibles like collector cars, in light greater capital gains tax liability on the sale of these types of items. It is important to note, however, that you cannot make an exchange on stock or interest in an REIT.