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Trading Up

The basics on Section 1031 exchanges.

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This story appears in the August 2006 issue of Entrepreneur. Subscribe »

Afraid of the capital gains bill you'll pay unloadingbusiness or that soared in value during thereal estate boom? Don't sell--swap. A Section 1031 exchangeallows you to sell a property used for business or investment andreinvest your gains in a second property--also used for business orinvestment--without paying taxes on your profit, says DerrickKinney, senior financial advisor with Ameriprise Financial inArlington, Texas.

Permissible since 1990, 1031 or "like kind" exchangeshave increasingly come into favor, thanks to soaring propertyvalues. "The buzz around these is just beginning," saysKinney, who notes that exchanges offer a way to address the taxproblem highly appreciated property can present.

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