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When Is Gain Or Loss Recognized?

In a 1031 exchange, gain or loss is not recognized until the taxpayer sells or disposes of the replacement property. This means that if the taxpayer follows all the rules of a 1031 exchange, they can defer paying taxes on the gain from the sale of their relinquished property.

To qualify for tax deferral, the taxpayer must use a qualified intermediary to facilitate the exchange and must identify replacement property within 45 days of the sale of the relinquished property. The taxpayer must also acquire the replacement property within 180 days of the sale of the relinquished property.

If the taxpayer receives cash or other non-like-kind property as part of the exchange, this is considered “boot” and may be subject to taxes. Any gain or loss on the boot will be recognized in the year of the exchange.

It’s important to note that the rules and requirements for a 1031 exchange can be complex and should be carefully followed to ensure tax deferral. If you have any questions or need assistance with your 1031 exchange, please don’t hesitate to contact us at 1031 Exchange Place.