The New Year brings with it a welcomed tax change to Pennsylvania: the recognition of Internal Revenue Code (IRC) Section 1031 like-kind exchanges. Under the federal tax rules, gain or loss is recognized upon the disposition of property, including dispositions involving an exchange of property. However, Section 1031 is an exception to the general rule—it provides that the recognition of gain or loss can be deferred under certain circumstances when property held for productive use in a trade or business or for investment is exchanged for property of a like kind and is held for productive use in business or investment.

Section 1031 offers important advantages to real estate investors. It allows for the immediate deferral of gain, which in turn creates increased cash flow from the money that is retained by not having to immediately pay tax on the gain—thereby allowing for the growth of real estate portfolios.