Section 1031 of the U.S. Internal Revenue Code allows investors to defer capital gains taxes on the exchange of like-kind properties:

"No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment."

So, what does it mean? In a nutshell, taxpayers should never have to pay income taxes on the sale of property if they intend to reinvest the proceeds in similar or like-kind property.

Generally, any fee interest in real property can be exchanged for any fee interest in another real property, provided that both the relinquished and the replacement property are held by the taxpayer for use in a trade or business or for investment.

There are literally thousands of variations of how to complete a §1031 tax exchange. Your particular scenerio may not exactly fit into the categories listed on the right side of the page, but a consultation with your tax/legal advisor and a Qualified Intermediary (QI) will help iron-out uncertainties. The QI is responsible for putting the documentation in place to qualify your transaction as a Delayed Exchange.

Oddly enough, there are no licensing requirements for QI's, and few regulations on who can serve as one. Therefore, it's important to select a QI with professional credentials and extensive experience. You'll want to verify your QI is an active member of the Federation of Exchange Accommodators (FEA), the only national organization for the industry.

For a free consultation anytime (and definitely before closing on relinquished property), I've provided links to my preferred QI, Asset Preservation, Inc., (API), at the top of the column to the right. API can also be reached at (800) 282-1031 but the online form is a quick and convenient way to get your particular questions in front of an expert. And, remember, there are no "stupid" questions. Afterall, you're dealing with your financial future - why not consult someone you can trust?.