--- title: HISTORY OF SECTION 1031 OF THE INTERNAL REVENUE CODE description: This article gives history of the IRS 1031 Exchange and how it evolved over the years by taking a look at it's different aspects and changes over the years image: https://blog.fgg1031.com/hubfs/accounting-bill-black-53621-e1538540668133.jpg --- [info@firstguardiangroup.com](mailto:) [(866)398-1031](tel:(866)398-1031) [![fgg](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/fgg.png)](https://brokercheck.finra.org/individual/summary/6470002) [![fgg-871923](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2023/fgg-871923.png)](https://www.bbb.org/us/ca/san-jose/profile/commercial-real-estate/first-guardian-group-1216-887513) [![logo](https://blog.fgg1031.com/hs-fs/hubfs/FirstGuardianGroup_2022/logo.png?width=175&height=56&name=logo.png "logo")](http://fgg1031.com) - [Home](https://fgg1031.com/) - [About Us](https://fgg1031.com/about-us/) - [Current Offerings](https://fgg1031.com/property-listings-directory/) - [Resource Center](https://fgg1031.com/resource-center/) - [Glossary](https://fgg1031.com/glossary/) - [Accommodators](https://fgg1031.com/accommodators/) - [FAQ](https://fgg1031.com/faqs/) - [Tax eBook](https://pages.fgg1031.com/resources/real-estate-tax-deferral-strategies-ebook) - [Real Estate eBook](https://pages.fgg1031.com/real-estate-investing-in-the-new-era2) - [QI eBook](https://pages.fgg1031.com/resources/qualifiedintermediary/ebook) - [Tax Calculator](https://fgg1031.com/tax-calculator/) - [Newsroom](https://fgg1031.com/newsroom/) - [Blog](https://blog.fgg1031.com/blog) - [Events](https://fgg1031.com/events/) - [Contact Us](https://fgg1031.com/contact/) ![search-interface-symbol](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/search-interface-symbol.png) ![loader](https://f.hubspotusercontent-eu1.net/hubfs/24949188/Business%20and%20Finance/global/22.gif) ![close](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/close.png) From Pages From Blog Pages Load More Load More **Sorry, we couldn't find a match for  "".** Check your spelling or try a related search term. 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The first tax-deferred like-kind exchange was authorized as part of The Revenue Act of 1921, when the United States Congress created Section 202(c) of the Internal Revenue Code, allowing Investors to exchange securities and non-like-kind property unless the property acquired had a "readily realizable market value." These non-like-kind property provisions were quickly eliminated with the adoption of The Revenue Act of 1924.  The Section number applicable to tax-deferred like-kind exchanges was changed to Section 112(b)(1) with the passage of The Revenue Act of 1928.  In 1935, the Board of Tax Appeals approved the first modern tax-deferred like-kind exchange using a Qualified Intermediary (Accommodator) and the “cash in lieu of” clause was upheld so that it would not invalidate the tax-deferred like-kind exchange transaction. **Creation of Section 1031 of the Internal Revenue Code** The 1954 Amendment to the Federal Tax Code changed the Section 112(b)(1) number to Section 1031 of the Internal Revenue Code and adopted the present day definition and description of a tax-deferred like-kind exchange, laying the groundwork for the current day structure of the tax-deferred like-kind exchange transaction. **Starker Family Case Sets Precedent** The tax court cases and corresponding decisions, including an appellate decision from the 9th Circuit Court of Appeals resulting from the now famous Starker family tax-deferred like-kind exchange transactions, changed the tax-deferred like-kind exchange industry forever.  The Starker family litigation stemmed from two delayed tax-deferred like-kind exchange transactions where T.J. Starker and his son Bruce Starker sold [timberland](http://www.exeter1031.com/article_1031_exchange_of_timberland_timber.aspx) to Crown Zellerback, Inc. in exchange for a contractual promise to acquire and transfer title to properties identified by T.J. Starker and Bruce Starker within five (5) years.  The Internal Revenue Service disallowed this arrangement, contending, among other things, that a delayed exchange did not qualify for non-recognition treatment (i.e. deferral of income tax liabilities). These tax court decisions were significant in numerous ways and set the precedent for our present day non-simultaneous, delayed tax-deferred like-kind exchange transactions. The Starker family cases demonstrated to the investment community that non-simultaneous, delayed tax-deferred like-kind exchanges will qualify for non-recognition treatment, which provided Investors (Sellers) with significantly more flexibility in the structuring of tax-deferred like-kind exchange transactions. **45-Day/180-Day Rules Introduced** The Starker family tax-deferred like-kind exchange tax court decisions established the need for regulations regarding delayed tax-deferred like-kind exchanges and prompted the United States Congress to eventually adopt the 45 *calendar* day Identification Deadline and the 180 *calendar* day Exchange Period as part of The Deficit Reduction Act of 1984, which also “codified” or adopted the delayed tax-deferred like-kind exchange provisions that we have today.  The Deficit Reduction Act of 1984 also amended Section 1031(a)(2) of the Internal Revenue Code to specifically disallow exchanges of partnership interests (See Section on Partnership Issues). The Tax Reform Act of 1986 is responsible for the tremendous explosion in the number of tax-deferred like-kind exchange transactions administered today.  The Tax Reform Act of 1986 eliminated preferential capital gain treatment so that all capital gains were taxed as ordinary income, enacted “passive loss” and “at risk” rules, and eliminated accelerated depreciation methods in favor of straight line depreciation consisting of 39 years for commercial property and 27.5 years for residential property.  These changes significantly restricted the tax benefits of owning real estate and catapulted the tax-deferred like-kind exchange into the lime light as being one of the few income tax benefits left for real property Investors. **Domestic vs. Non-Domestic and Related Party Issues Addressed** The Revenue Reconciliation Act of 1989 resulted in a few changes to the tax-deferred like-kind exchange arena, including the disqualification of tax-deferred like-kind exchange transactions between domestic (United States) and non-domestic (foreign) property and placed restrictions on related party tax-deferred like-kind exchange transactions in the form of a two year holding period requirement. **Tax-Deferred Exchange Regulations Issued by IRS** The long awaited proposed tax-deferred like-kind exchange rules and regulations were issued by the Department of the Treasury effective July 2, 1990.  The proposed rules and regulations specifically clarified the 45 *calendar* day identification period and the 180 *calendar* day exchange period rules, provided guidance on how to deal with actual and constructive receipt issues in the form of safe harbor provisions, reaffirmed that partnership interests do not qualify as like-kind property in a tax-deferred like-kind exchange transaction, and further clarified the related party rules. The proposed [tax-deferred like-kind exchange rules and regulations](http://www.exeter1031.com/irs_code_regulations_rulings.aspx) were issued as final rules and regulations effective June 10, 1991 with only a few minor adjustments, including the further clarification and definition of what constitutes a “simultaneous exchange” and an “improvement exchange,” and which parties were disqualified from serving as a Qualified Intermediary (Accommodator). The Tax Relief Act of 1997 attempted to significantly change Section 1031 of the Internal Revenue Code, but failed.  There have been a number of attempts to alter portions of the 1031 Exchange code and regulations ever since, but none have been successful to date. **Parking Arrangement Guidelines Issued for Reverse 1031 Exchange Structures** The issuance of [Revenue Procedure 2000-37](http://www.exeter1031.com/1031_exchange_revenue_procedure_2000_37.aspx) gave Investors and Qualified Intermediaries guidelines on how to structure reverse tax-deferred like-kind exchange transactions where the Investor’s like-kind replacement property can be acquired before he disposes of his relinquished property.  This reduced the risk associated with the 45 *calendar* day identification period. **Tenant-In-Common (TIC) Investment Property Guidelines Introduced by IRS** The introduction of [Revenue Procedure 2002-22](http://www.exeter1031.com/1031_exchange_revenue_procedure_2002_22.aspx) has arguably had the most significant impact on the 1031 Exchange industry since the Tax Reform Act of 1986.  It provided investors with an additional replacement property option that had not existed before — fractional or co-ownership of real estate (CORE) — and is partially responsible for the explosive growth in the volume of 1031 Exchange transactions between 2002 and 2007. However, The Great Recession of 2005 to 2009, along with growing issues among many TIC owners to make required property decisions forced some difficult lessons on lenders.  Lenders are now very hesitant to lend under any TIC investment property structure, so investors must now look to the Delaware Statutory Trust in order to get lenders on board. **Delaware Statutory Trusts (DSTs) Guidelines Introduced by the IRS** Revenue Ruling 2004-86 was issued by the Treasury Department paving the way for a whole new way for investors to invest in fractional or co-ownership interests in real property.  Revenue Ruling 2004-86 now permitted [Delaware Statutory Trusts](http://www.exeter1031.com/overview_delaware_statutory_trust_dst.aspx) or DSTs to qualify as real estate and therefore as a replacement property solution for 1031 Exchange transactions.  Investors could acquire a fractional or percentage interest in the Delaware Statutory Trust as a beneficiary in the DST.   In the end, the net effect of the DST is very similar to the TIC investment property but offers a number of improvements that appeals to both lenders and many investors. **1031 Exchanges Can Be Combined with 121 Exclusion** [Revenue Procedure 2005-14](http://www.exeter1031.com/irs_code_regulations_rulings.aspx) was issued and made effective on January 27, 2005 and made it possible for the first time for homeowners to use the tax-deferral mechanism of Section 1031 on their primary residence, if done in conjunction with the specific strategy delineated under the Revenue Procedure. So long as the property in question satisfies the requirements for both Code Sections 1031 and 121, then the Section 121 Exclusion operates to exclude from taxable income either 250,000 or 500,000 in capital gain from the sale, exchange or disposition of the property and any additional gain may be deferred by reinvesting in like-kind replacement property through a tax-deferred like-kind exchange. The above discussion is reprinted in part with permission of Exeter 1031 Exchange Services, LLC   ### [Paul Getty](https://blog.fgg1031.com/blog/author/paul-getty) Paul M. Getty is one of the most experienced 1031 exchange specialists in the United States, with a career in real estate that spans over 35 years and more than $5 billion in commercial transactions across every major asset class. His work covers single-family rentals, apartments, retail, office, multifamily, and student and senior housing, giving him a practical understanding of how different property types perform across market cycles and how investors can move between them using tax-deferred exchange strategies. As President and CEO of FGG1031 | First Guardian Group, Paul advises investors through the full 1031 exchange process, from identifying qualifying replacement properties to structuring acquisitions through Delaware Statutory Trusts (DSTs) and wholly owned real estate. His guidance covers both the compliance requirements of a valid exchange and the investment decisions that determine long-term portfolio outcomes – a combination that is difficult to find in a single advisor. Paul holds a California and Texas real estate broker license and carries Series 22, 62, 63, and 82 securities licenses as a registered representative with Emerson Equity LLC, member FINRA /SIPC. He has represented buyers and sellers across complex commercial transactions, sourced and structured debt and equity, and worked alongside nationally recognized firms including Marcus Millichap, CBRE, JP Morgan, and Morgan Stanley. Before founding FGG1031, he co-founded Venture Navigation, a boutique investment banking firm whose M&A and IPO activity generated over $700 million in investor returns. Paul holds an MBA in Finance from the University of Michigan and a bachelor’s degree in chemistry from Wayne State University. He has also completed coursework in artificial intelligence at Stanford University. He is the author of four books on real estate investing and tax deferral strategy, including Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST) and Real Estate Investing in the New Era, both available on Amazon. A frequent speaker on 1031 exchanges, DST investing, and real estate tax strategy, Paul Getty is a recognized voice for investors and advisors seeking guidance on capital preservation through tax-deferred real estate investment. ## Your Comments : This is a search field with an auto-suggest feature attached. - There are no suggestions because the search field is empty. - Latest Posts - Popular Posts [Partial 1031 Exchange: How It Works, What Gets Taxed, and When It May Make Sense](https://blog.fgg1031.com/blog/partial-1031-exchange-how-it-works) [ 1031 Exchange](https://blog.fgg1031.com/blog/topic/1031-exchange) [721 UPREIT Options in DST Programs (Part 3)](https://blog.fgg1031.com/blog/721-upreit-options-in-dst-programs) [ Real Estate Investors](https://blog.fgg1031.com/blog/topic/real-estate-investors) [ DST](https://blog.fgg1031.com/blog/topic/dst) [ 721 Exchange](https://blog.fgg1031.com/blog/topic/721-exchange) [ UPREIT](https://blog.fgg1031.com/blog/topic/upreit) [ New featured](https://blog.fgg1031.com/blog/topic/new-featured) [Can a 9% Taxable Return Beat a 4.5% Tax Advantaged DST?](https://blog.fgg1031.com/blog/can-a-9-taxable-return-beat-a-4.5-tax-advantaged-dst) [ Real Estate Investors](https://blog.fgg1031.com/blog/topic/real-estate-investors) [ DST](https://blog.fgg1031.com/blog/topic/dst) [ New featured](https://blog.fgg1031.com/blog/topic/new-featured) ### Categories - 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[Investing in Senior Housing October 20, 2022](https://blog.fgg1031.com/blog/investing-in-senior-housing) - [A Closer Look at the 7 Deadly Sins October 20, 2022](https://blog.fgg1031.com/blog/a-closer-look-at-the-seven-deadly-sins) - [What is a Springing LLC? October 20, 2022](https://blog.fgg1031.com/blog/what-is-a-springing-llc) ## Useful Links - Home - About Us - Blogs - Testimonials from Past Customers - Resource Center - Current Offerings Disclaimer: There is no guarantee that any strategy will be successful or achieve investment objectives. All real estate investments have the potential to lose value during the life of the investments. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please be aware that this material cannot and does not replace the Memorandum and is qualified in its entirety by the Memorandum. This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This material contains information that has been obtained from sources believed to be reliable. However, FGG1031, First Guardian Group, LightPath Capital, Inc., and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies, declining market values, potential loss of entire investment principal. Past performance is not a guarantee of future results: potential cash flow, potential returns, and potential appreciation are not guaranteed in any way and adverse tax consequences can take effect.  The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. All financed real estate investments have a potential for foreclosure. Delaware Statutory Trust (DST) investments are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments. Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions. Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits. IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situation. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over one million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than five million dollars). If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney prior to considering an investment. Securities offered through registered representatives of [LightPath Capital, Inc.](http://www.lightpathcapital.com/) Member [FINRA](http://www.finra.org/) / [SIPC](https://www.sipc.org/). FGG1031, First Guardian Group, and LightPath Capital, Inc. are separate entities. Copyright 2022, All Rights Reserved, FGG1031 [![FGG_Footer_White](https://blog.fgg1031.com/hs-fs/hubfs/FirstGuardianGroup_2022/FGG_Footer_White.png?width=300&height=95&name=FGG_Footer_White.png "FGG_Footer_White")](http://fgg1031.com) 97 East Brokaw Road, Suite 350, San Jose, CA 95112 [(866) 398 1031](tel:(866)%20398%201031) [info@firstguardiangroup.com](mailto:) [![Bitmap](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2023/Bitmap.png)](https://brokercheck.finra.org/individual/summary/6470002) ## Recent Blogs - [Understanding the Difference Between Inheritance and Estate Tax August 3, 2023](https://blog.fgg1031.com/blog/understanding-the-difference-between-inheritance-and-estate-tax) - [Public or Private Real Estate? Your Investment Portfolio May Need Both July 27, 2023](https://blog.fgg1031.com/blog/public-or-private-real-estate-your-investment-portfolio-may-need-both) - [How to Use 1031 Exchange Funds to Improve Your Replacement Property July 20, 2023](https://blog.fgg1031.com/blog/how-to-use-1031-exchange-finds-to-improve-your-replacement-property) ## Useful Links - [Home](http://fgg1031.com/) - [About Us](https://fgg1031.com/about-us/) - [Blogs](https://blog.fgg1031.com/blog) - Testimonials from Past Customers - [Resource Center](https://fgg1031.com/resource-center/) - [Current Offerings](https://fgg1031.com/property-listings-directory/) FGG1031 | First Guardian Group and Emerson Equity LLC do not provide legal or tax advice. Securities offered through [Emerson Equity LLC](http://www.emersonequity.com/) Member [FINRA/SIPC](http://finra.org/) and MSRB registered. Emerson Equity LLC is unaffiliated with any entity herein. 1031 Risk Disclosure: - There is no guarantee that any strategy will be successful or achieve investment objectives; - Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments; - Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities; - Potential for foreclosure – All financed real estate investments have potential for foreclosure; ·Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments; - Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions; - Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits No offer to buy or sell securities is being made. Such offers may only be made to qualified accredited investors via private placement memorandum. Risks detailed in a private placement memorandum should be carefully reviewed, understood and considered before making such an investment. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Changes to the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made. Past performance and/or forward looking statements are never an assurance of future results. Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read and understand all of the risks associated with buying private placement securities. Investments are not guaranteed or [FDIC](http://fdic.org/) insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur. **Risk Disclosure:** Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss. NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by FGG1031 | First Guardian Group, Emerson Equity LLC, or any affiliate, or partner thereof. FGG1031 | First Guardian Group does not warrant the accuracy or completeness of the information contained herein. Copyright 2026, All Rights Reserved, FGG1031