A real property exchange, often called a 1031 exchange, allows investors to defer paying capital gains taxes when swapping one investment property for another of like kind. However, if the transaction does not meet IRS requirements or if “boot” (cash or non-like-kind property) is received, the gain becomes taxable. The Maryland course identifies taxable gains as the main drawback when the exchange fails to fully qualify for deferral.
[Reference: Maryland 60-Hour Principles and Practices – “Real Estate Financing and Investment”; Internal Revenue Code §1031., , , ]
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