Tax-free exchanges (1031)
Tax-free Exchanges (1031)
If you are selling equipment for capital gain, you may be eligible to defer taxes by using a 1031 exchange (Internal Revenue Code §1031), also known as a "Tax-Free" exchange. Through a Tax-Free exchange, you can save thousands of dollars in income taxes when selling a piece of equipment and buying another, similar piece of equipment.
Normally, a construction equipment owner would pay federal income tax on the gain from selling a piece of equipment. For example, a taxpayer in a 30% tax bracket selling a piece of equipment for a $20,000 gain would owe approximately $4,500 in federal income taxes on that sale. Without a Tax-Free exchange, this taxpayer would now have only $15,500 in their pocket to apply to the purchase of another piece of equipment.
With the tax-deferred exchange, however, a construction equipment owner can defer ALL federal income taxes on the sale of a piece of their equipment when they buy a similar piece of equipment within a specific time period and when they use a Qualified Intermediary.
To find out if you can have more cash available to invest in replacement equipment by qualifying for a Tax-Free exchange, you can:
- Check with your accountant
- Learn more about Tax-Free Exchanges at www.1031.org
- Call IronPlanet Customer Care at 888-433-5426.