1031 Like Kind Property Exchange
Under section 1031, you can exchange any real property for any other real property within the United States if those properties are held for productive use in trade or business or for investment purposes. A duplex can be exchanged for a four-plex. Improved real estate can be replaced with unimproved real estate. Unimproved real estate can be replaced with improved real estate. Investment property can be exchanged for business property and business property can be exchanged for investment property. One property can be exchanged for two or more properties. Two or more properties can be exchanged for one replacement property. A 100% interest can be exchanged for an undivided percentage interest with multiple owners and vice-versa.
One kind of class of property may not under this section be exchanged for property of a different kind or class. A taxpayer’s personal residence cannot be exchanged for income property, and income or investment property cannot be exchanged for a personal residence, which the taxpayer will reside in. If you’ve done a Section 1031 like-kind exchange, you are denied the exclusion if you sell the home within five years of the exchange. Property acquired in a section 1031 like-kind exchange is ineligible for the section 121 exclusion if it is sold within five years of the exchange.
Properties that qualify for 1031 like kind exchange:
- Unimproved property for commercial property
- Office building for hotel
- Airplane for aircraft
- Apartment building for farm or ranch
- Raw land for retail space
- Residential property owned for rental purposes
Properties which do not qualify for 1031 like kind exchange includes:
- A personal residence
- Land under development
- Construction or fix/flips for resale
- Inventory property
- Corporation common stock
- Partnership interests
Qualification for section 1031 exchange depends largely on the extent of personal use.
This document/post/article is not to be considered as legal advice. Content and information contained herein is subject to changes, modifications, and may contain inaccuracies or out-of-date information. As with any legal matter or other matters of importance, consultation with an attorney or professional is the best course of action.