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Buying LandOwning Land

What is a 1031 Exchange?

May 9, 2019

The situation: You want or need to sell your income-producing land and want or need to purchase another income-producing property, but would prefer not to pay capital gains taxes. A 1031 exchange will allow you to utilize the sale proceeds to exchange and invest in another income-producing property while deferring payment of capital gains taxes.

What is an IRS Section 1031 Tax-Deferred Exchange?

Section 1031 has been in existence since 1921. It is utilized on income-producing property. It allows owners of business and investment properties to defer (not tax-free) payment of capital gains taxes by reinvesting proceeds from the sale of a currently owned property (relinquished property) into a like-kind property (replacement property); payment of tax is deferred until the property is sold with no reinvestment.

As a property owner, when and why would you utilize a 1031 exchange?

For income-producing properties, 1031 exchanges are utilized for:

  • asset preservation
  • consolidation of diversification of investments
  • relocation of investments
  • greater cash flow
  • appreciation/leverage
  • to build wealth
  • job creation

A survey of REALTORS® indicated that 63% participated in a like-kind exchange transaction between 2011 and 2015; 40% indicated that transactions would not have occurred in the absence of the tax provision, and 56% said even if the project would have occurred it likely would have been smaller in scale. This survey revealed that REALTORS® or their clients said the reason they participated in a like-kind exchange, aside from the deferral of capital gains taxes, was for equity to acquire additional properties, estate planning, portfolio diversification, and completion of a development project. 

In 2015, the REALTORS® Land Institute (RLI), National Association of REALTORS® (NAR), and several organizations worked to educate legislators why repeal of Section 1031 would have a negative impact on real estate. As I was the RLI president at that time, I represented RLI at the gathering. The group met with 51 legislators, the Ag Committee and Senate Finance Committee.

I have written several articles on 1031 exchanges – feel free to contact me in regard to exchange questions.  In addition, the National Association of REALTORS® “Like-Kind Exchanges: Real Estate Market Perspectives” report can be found at

About the Author
Terri knows Minnesota land! - agricultural land, hunting/rec tracts, development land, land-in-transition, lakeshore and commercial land. Terri is your Minnesota land resource: listing/sales, auction, appraisal, 1031 exchange, consulting… Of 18,000+ REALTORS® in Minnesota, Terri is one of only 14 to have earned the ALC designation (Accredited Land Consultant). This designation, through REALTORS® Land Institute, requires rigorous experience, education, and expertise in the areas of real estate, auction, appraisal, 1031 exchange. Concern for her client’s needs through ethical and professional service is Terri’s objective. Her goal is to help you solve your land real estate situation or need. Call, text or email Terri to assist with your land situation or needs! Licensed: Broker/REALTOR® Minnesota & Nebraska; Auctioneer & Appraiser in Minnesota. View Terri's Listings and Reviews on