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Are You Eligible for a 1031 Exchange?

February 10, 2011

A new year brings with it promises of tax time. And while you’re poring over the multiple forms on your desk and sorting through your 2010 receipts, you may already be planning for your 2011 taxes. If you’re planning on selling one of your business’s assets this year and replacing it with a new one, you should be aware of 1031 exchanges.

A 1031 exchange is an IRS-approved way of deferring capital gain taxes. Every time you sell an asset and make a profit from that sale, that capital gain income is taxable. However, if you sell one piece of machinery or equipment and replace it within a certain period of time, you’ve performed a 1031 exchange. A 1031 exchange says that if money earned from an asset’s sale is used to purchase another asset of equal value, or like-kind, there is no economic gain and you are under no obligation to pay capital gain taxes.

The IRS clearly defines like-kind when it comes to pieces of machinery or equipment so it closely monitors these types of exchanges. Because of this, it’s a good idea to work with an NEBBI-certified appraiser when determining the value of your property for tax purposes.     

The NEBB Institute endorses and strives to observe the highest standards of professional ethics to preserve the public trust inherent in the professional appraisal practice. The Institute provides initial and monthly comprehensive education, ongoing support, and a dynamic international network, and certifies professionals in the art of machinery/equipment appraisal and brokerage.

By: NEBB Institute

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