Like-Kind Exchanges - Real Estate Tax Tips

Generally, if you exchange business or investment property solely for business or investment property of a like-kind, no gain or loss is documented under Internal Revenue Code Section 1031. If, as part of the exchange, you also receive other (not like-kind) property or money, gain is recognized to the extent of the other assets and money received, but a loss is not recognized.

Section 1031 does not apply to exchanges of catalog, stocks, bonds, notes, other securities or evidence of indebtedness, or certain other assets.

Like-Kind Property

Properties are of like-kind, if they are of the same nature or character, even if they vary in grade or quality. Personal properties of a similar to class are like-kind properties. However, livestock of different sexes are not like-kind properties. Also, personal property used principally in the United States and personal property used predominantly outside the United States is not like-kind properties.

Real properties usually are of like-kind, regardless of whether the properties are improved or unimproved. However, real assets in the United States and real property outside the United States are not like-kind properties.