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In the context of a 1031 exchange, “basis” refers to the original purchase price of the property that is being sold, plus any capital improvements made to the property during the time the owner held it. The basis is used to calculate the amount of taxable gain that the owner will realize upon the sale of the property and thus plays a critical role in determining the tax consequences of a 1031 exchange transaction.

In a 1031 exchange, the basis of the property that is being sold is transferred to the replacement property acquired in the exchange. This means that the owner’s tax liability is deferred, rather than eliminated, as the basis of the replacement property is reduced by the amount of gain that was deferred in the exchange.

It is important for those involved in a 1031 exchange transaction to have a clear understanding of basis, as it can have significant tax implications for the owner. Working with a qualified intermediary and/or tax professional can help ensure that all aspects of the exchange, including basis, are properly accounted for and managed.