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Under section 1031 of the Internal Revenue Code, a real property owner can sell his property and then reinvest the proceeds in ownership of the like-kind property and defer the capital gains taxes. To qualify as a 1031 like-kind exchange, property exchanges must be done in accordance with the rules set forth in the tax code and in the treasury regulations. 1031 exchange services can offer significant tax advantages to real estate buyers. Often overlooked, a 1031 like-kind exchange is considered one of the best-kept secrets in the Internal Revenue Code.

If you have real property that will net you a gain upon sale (generally property that has been substantially depreciated for tax purposes and/or has appreciated in fair market value), then you are exactly the person who should consider a 1031 exchange.

There are 5 tax classes of property:

1. Property used in taxpayer's trade or business.

2. Property held primarily for sale to customers.

3. Property which is used as your principal residence.

4. Property held for investment.

5. Property used as a vacation home.

Section 1031 applies to the first and fourth categories, and potentially the fifth category. Business use is defined as, "To hold property for productive use in trade or business." Property retired from previous productive use in business can be qualifying property. Investment purpose defined as real estate, even if unproductive, held by a non-dealer for future use or increment in property, for more than a temporary period, with the expectation that it will appreciate. Property held for sale in the immediate future is not held for investment.

Source: www.For1031.com