The indefinite capital gains tax deferral Section 1031 provides to the investor may, at first glance, seem to be a sort of gift from the US 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 eventual sale of a replacement property. Additionally, this ”interest free loan” may be kept by the investor indefinitely; an investor can choose to make any number of 1031 exchanges before ultimately electing to sell outright, at which point capital gains taxes must be paid.

A 1031 exchange doesn’t apply only to buildings and land, either. You can make an exchange on any real estate you are holding for investment in a business or trade, as well as some kinds of personal property, from cranes or backhoes to airplanes or classic cars. In fact, 1031 exchanges are particularly advantageous for those who have money in collectibles or antiques like collector cars, in light greater capital gains liability on the sale of these types of items. It is important to note, however, that you cannot make an exchange on things like shares of stock, bonds, or interest gained from a Real Estate Investment Trust.