What is like-kind property?
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Like-Kind Property is a general term that is
meant to be interpreted very broadly. It refers to the nature of the property or its use, and not to its quality. There are 3 guidelines that help taxpayers distinguish between what is
Like-Kind Property
for 1031 Exchange purposes and what is not.
 Livestock of different sexes are specifically not
Like-Kind Property
for 1031 Tax Exchanges
Real Estate can only be
1031 Exchanged for other Real Estate. Real Estate includes raw (unimproved) land, retail buildings, office buildings, single family homes, condominiums, apartment buildings, etc. Any type of Real Estate can be
1031 Exchanged for any other type of Real Estate regardless of whether it is improved or not. Real Estate within the United States cannot be
1031 Tax Exchanged for Real Estate outside of the United States.
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Example: Mark owns a house in Phoenix that he rents out for rental income. Mark could
1031 Exchange his house for Susan’s condominium in Sacramento, Phil’s apartment complex in Houston or Bert’s industrial building in Seattle. Mark could not however,
1031 Tax Exchange his house for Raul’s land in Mexico City.
Personalty can only be
1031 Exchanged for other personalty. Personalty can be defined as any asset that is not realty. Personalty includes items such as inventories, automobiles, machines, furniture, equipment, etc. Depreciable personal property, unlike realty, is subject to more specific criteria when assessing whether the property is
Like-Kind
for 1031 Exchange purposes.
Real Estate can be 1031 Exchanged with all types of Real Estate (apartments with raw land), whereas in personalty, the properties being
1031 Exchanged must both fall into more specific “asset classes”. An example of a more specific asset class would be “office furniture”, or “heavy duty machinery”. Personalty used mainly in the United States cannot be
1031 Exchanged with personalty that is mainly used outside of the United States.
ABC Corporation owns a heavy duty truck used on a construction site in California. ABC Corporation can
1031 Exchange this truck with XYZ Corporations’ heavy duty construction truck used in Iowa. ABC Corporation could not, however,
1031 Exchange their truck for another truck XYZ uses in Germany.
The tax code also specifically states that stocks, bonds, loans and interests in partnerships do not qualify for
1031 Tax Deferred Exchanges. However, certain real estate joint ventures structured tenancy- in- common are not considered partnerships by the IRS.
For more information on Like-Kind Property, specific asset classes and the
1031 Tax Exchange criteria of depreciable personal property consult a tax professional. |
