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Irs 1031 exchange rules 2024 Form: What You Should Know

Part II. Example. Section 1031 Transactions: In general, if you are getting an income distribution from a section 1031 exchange of an income asset and are exchanging it for any other asset (such as stock), your gain or loss on the exchange does not qualify for the 3,450 limit or the 8% limit. However, your gain or loss on exchanging the second asset for the first asset may qualify for the 3,450 limit or the 8% limit. See page 20 of Internal Revenue Code of 1986 paragraph (g)(8). Other IRC Sections Not Inclusive: Like-Kind Exchanges are not subject to any other provisions under the Internal Revenue Code other than a limit under Section 1031 on the excess of the fair market value of your property over the adjusted basis of your property in your hands at the time of the exchange. This section does not apply to gains or losses from capital gain real property exchanges (such as exchanges of stocks), unless the shares of stock you have not already sold are in the same class as the stock that you plan to receive in the section 1031 exchange. For example: If you are exchanging shares of stock for 5,000 in another company's stock, you would have to take a 300 tax deduction and a 1,000 tax credit. If, however, you are exchanging stocks in other similar stocks of another company for shares of other similar stocks of the same company, you would have to deduct 300 and file your return as if you already had bought the stock in the exchange, regardless of whether you already owned the stock in the other company. Note: There is a limitation on the gains you can obtain from the like-kind exchanges. You may use any of the following methods to reduce your gain, but there is no limit on the amount of the actual tax-favored gain. For example: You may trade the property for another property the following calendar year. Then you may use the 4,500 (or 10,000) deduction to reduce your actual tax-favored gain. An alternative to the depreciation method would be to use an adjustment to income method. Under this method, you would be able to reduce your capital cost basis of the property you are exchanging for that of another property so far as your gain from the exchange is concerned.

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