Section 1031 of the Internal Revenue Code (IRC) allows an owner of any business or investment property to defer paying federal and state capital gain taxes and depreciation recapture if they purchase a “like kind exchange” property following the rules and regulations of the tax code. The real power of a tax deferred exchange is not just this tax savings – it is the tremendous increase in purchasing power generated by this tax savings!
A hotel 1031 exchange allows hotel investors to use all of their sale proceeds to leverage into more valuable real estate, diversify into other properties, increase cash flow and investment returns or consolidate into a larger property.
IRC Section 1031 states that “no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.”
Hotel investors have a number of options available:
When exchanging a hotel, the owner must be sure they are exchanging “like kind” real property for other “like kind” real property. “Like kind exchange” or “like-class” personal property must also be exchanged for equivalent personal property.
Investors performing a hotel exchange should always work closely with an attorney or CPA to ensure the transaction is structured properly. Call us to discuss the additional complexities involved in a hotel 1031 exchange.