1031 Exchange

1031 Exchange Resources

• The Basics
• Tenant in Common
• 1031 Exchange Law
• 1031 Exchange Options
• 1031 Exchange Overview
• Replacement Property
• 1031 Exchange Process
• 1031 Exchange Provisions

1031 Like-Kind Exchange

Like-Kind Property

The heart of the 1031 Exchange tax deferment law is the concept of like-kind property. The deferment of capital gains tax can only be achieved if you exchange real property for property considered like-kind within 160 days of the date you sell the first property. The "like-kind" property must be properly identified within 45 days of the original property's sale.

Traditionally, the term "like-kind" property refers to property of similar nature or character. Under the 1031 Exchange tax law, "Like-Kind" refers to the property's intended use -- not its nature or character. According to Section 1031 of the IRC, like-kind property  is an asset that is "held for productive use in a trade or business  or for investment that is exchanged solely for similar property." All real property -- improved or unimproved -- is considered like-kind for purposes of the 1031 Like-Kind Exchange.

Like-Kind Property

What is considered "like-kind" property? The IRS classifies real estate in the four following categories:

*It is your use of the property that affects its status. What the buyer or seller of the property does with the property does not affect its status for 1031 Exchange.

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Like-Kind Property Examples

• Commercial
• Multiple Family Dwelling
• Residential Rental
• Restaurants
• Retail
• Mines & Quarries
• Timber & Timberland
• Undeveloped land
• Warehouses

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Property Excluded from 1031 Exchange

The 1031 Tax Law states that the following assets are excluded from the 1031 Exchange:

• Stock in trade or other property held primarily for sale
• Stocks, bonds or notes
• Other securities or evidences of indebtedness or interest
• Interests in a partnership
• Certificates of trust of beneficial interests, or
• Choses in action

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Example of a "Like-Kind" Exchange

Investor "A" sells an interest in an apartment complex, and in turn takes the proceeds and immediately, within 45 days buys a duplex.

US Real Estate

Real estate in the U.S. is like-kind to all other U.S. real estate, including warehouse property, multi-family dwellings, condominiums, and vacant land.

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Personal Property

Tangible, depreciable personal property assets may be either like-kind or like-class. The 1031 Exchange tax law defines 13 asset classes within which property is deemed to be like-kind. For example, land may be exchanged  for land because they are in the same asset class.

Personal property assets not covered under the general asset classes are considered like-class if they both have the same SIC code. A forklift is like-class to a tractor because they are both in the same product class.

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