1031 Exchange Answers by Top Calabasas Realtors
What is a 1031 Exchange?
The exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.
This is a much more complicated subject and should be answered by a qualifed professional. Contact your tax account for further information.
1031 Exchange – “like-kind” properties?
My clients often ask me: What is like-kind properties? Can we sell a single family home and buy a condominium? Can I sell commercial office building and buy an apartment building? The answer simply is yes. IRC Section 1031 does not limit “like-kind” property to certain types of real estate. The term refers to the nature or character of the property and not to its grade or quality.
The types of real estate which can be exchanged are extremely broad. The tax code states any real estate held for productive use in a trade or business or for investment – whether improved or unimproved is considered “like-kind”. Some examples of like-kind real estate are:
- Unimproved for improved property
- Commercial building for vacant land
- Industrial property for rental resort property
- Single family home for a condominium or industrial property
As you can see from the above examples, the definition of like kind under a tax deferred exchange is very broad. So what is NOT considered like kind real property?
- Personal Property
- Primary Residence
- Property held primarily for resale
- Stock in trade
Now, this is not to say you cannot do an exchange with personal property. Qualifying personal property must be “held for productive use in a trade of business or for investment. In general, qualifying properties must both be in the same General Asset Class or within the same Product Class.
As always, it is critical for any taxpayer to review any transaction with their own tax/legal advisors before entering into any 1031 Exchange.
1031 Exchange Made Simple
Like-Kind Exchanges – Real Estate Tax Tips (IRS)
Internal Revenue Code Section 1031 (Wikipedia)