ORDINARY INCOME in a 1031 exchange refers to any income that is not considered a capital gain. It includes, but is not limited to, wages, salaries, bonuses, and interest income.
- Ordinary income is taxed at a higher rate than capital gains.
- Ordinary income is not eligible for tax-deferred treatment in a 1031 exchange.
- Understanding the difference between ordinary income and capital gains is important for successful 1031 exchange planning.
Let’s say an investor received a $10,000 bonus from their employer. This bonus would be considered ordinary income.
- Carefully review all income received to determine if it is considered ordinary income or capital gains.
- Consult a tax professional for advice on classifying different types of income.
- Plan your 1031 exchange carefully to ensure that all exchanged property generates capital gains and not ordinary income.
- Work with a qualified intermediary to ensure that all exchange transactions are structured to minimize ordinary income.
- Consider all tax implications when planning your 1031 exchange, including the impact of ordinary income.
- Seek professional advice from a tax expert to ensure that your 1031 exchange is structured in the most tax-efficient manner.