Question

Will capital gain tax be due upon the sale of a parcel of land which was...

Will capital gain tax be due upon the sale of a parcel of land which was purchased in 2009 for $2,000,000 and sold in 2019 for $3,500,000 if the sale proceeds are reinvested in an apartment building using as IRC Sec. 1031 property exchange?

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Answer #1

Section 1031 of the Internal Revenue Code (IRC) states that a property held for investment is exchanged solely for investment purpose for a like-kind property, then no capital gain shall be taxable. Now, what does like-kind means? The definition of like-kind given by IRC is that a property which is same in nature, character or class.

In the given case above, if the property is exchanged for investment purposes only, then the capital gain will not be recognized. But, if the property is exchanged for personal use, then the capital gain made on the sales of the parcel of land shall be recognized and hence, will be taxable.

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