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Section 1031

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Section 1031 refers to a portion of the U.S. tax code according to which investors can defer payment of capital gains taxes if they exchange properties of a similar kind. Section 1031 stipulates that owners who sell one piece property to buy another don't have to pay taxes on proceeds from the sale. If and when a property is sold without a subsequent re-investment, section 1031 no longer applies. Section 1031 is primarily intended to cover cases where an exchange takes place for investment or business purposes. The concept underlying section 1031 is that exchanging one property for another achieves no economic gain, only transfers the location of economic value. Section 1031 does not make distinctions of quality between exchanged properties. Stocks, bonds, and other financial instruments are not covered by section 1031. Property outside the U.S. exchanged for property inside the U.S. and vice-versa is not covered by section 1031, because they are not considered like-kind.

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