Like-kind properties are real estate assets of a similar nature that can be exchanged without incurring any tax liability under Section 1031 of the Internal Tax Code. Properties must be held for business or investment purposes but do not need to be similar in grade or quality.
What properties qualify for a 1031 exchange?
The main requirements for a 1031 exchange are: (1) must purchase another “like-kind” investment property; (2) replacement property must be of equal or greater value; (3) must invest all of the proceeds from the sale (cannot receive any “boot”); (4) must be the same title holder and taxpayer; (5) must identify new …
What type of property is eligible for like-kind exchange treatment?
Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. Real properties generally are of like-kind, regardless of whether they’re improved or unimproved. For example, an apartment building would generally be like-kind to another apartment building.
How soon can I sell my 1031 exchange property?
The timeline for this process is the exact opposite of a typical 1031 exchange. After buying the new property, you’ll have 45 days to identify which property is going to be sold and a total of 180 days to complete the sale.
IRC Section 1031 does not limit “like-kind” property to certain types of real estate. Any real property held for productive use in a trade or business or for investment can be considered “like-kind” property. The term refers to the nature or character of the property, rather than its grade or quality.
What type of property qualifies for like-kind exchange?
Qualified “Like-Kind” Property
- Raw land or farmland for improved real estate.
- Oil & gas royalties for a ranch.
- Fee simple interest in real estate for a 30-year leasehold or a Tenant-in-Common interest in real estate.
- Residential, Commercial, Industrial or Retail rental properties for any other real estate.
What type of properties benefit from a 1031 exchange?
A 1031, or “like-kind,” exchange allows private investors, corporations, LLCs, and partnerships to swap one qualifying investment for another of equal or greater value without having to pay federal taxes on gains at the time of sale as long as they roll all the proceeds into the new investment.
Is the 1031 exchange a sale or a like kind exchange?
Broadly stated, a 1031 exchange (also called a like-kind exchange or a Starker) is a swap of one investment property for another. Although most swaps are taxable as sales, if yours meets the …
How does a deferred exchange qualify under Section 1031?
They allow you to dispose of property and subsequently acquire one or more other like-kind replacement properties. To qualify as a Section 1031 exchange, a deferred exchange must be distinguished from the case of a taxpayer simply selling one property and using the proceeds to purchase another property (which is a taxable transaction).
Can a partnership be traded in a 1031 exchange?
IRC Section 1031 (a) (2) (D) prohibits exchanges of partnership member interests. However, a 100% partnership or LLC interest will qualify as like-kind real property when sold by the Exchanger. Partnership may convert from a general to limited partnership or LLC during the exchange without impacting the 1031 Exchange.
Can a real estate exchange be like kind?
Real property and personal property can both qualify as exchange properties under Section 1031; but real property can never be like-kind to personal property. In personal property exchanges, the rules pertaining to what qualifies as like-kind are more restrictive than the rules pertaining to real property.
