Let’s Make It Simple: 1031 Exchanges, aka Like-Kind Exchanges

October 1, 2019

Let’s Make It Simple: 1031 Exchanges, aka Like-Kind Exchanges

Looking for a way to defer those capital gains taxes when selling a business or investment property? The answer is a like-kind exchange, which is also known­ as a 1031 exchange (named for Section 1031 of the Internal Revenue Code). Senior Accountant Daniel Currie says, “When certain property is exchanged solely for property of a like kind and held for use in a business or for investment, then there is no gain or loss that needs to be recognized, provided certain requirements are met.

When making this type of exchange, the taxpayer would defer the gain (or loss) on the exchange and be required to submit Form 8824 to the IRS with their tax return. Daniel is particularly well-versed in like-kind exchanges, and his work was recently featured in Volume 8, No. 1 of The Contemporary Tax Journal. For this article, he conducted research to clearly explain the requirements that must be met and crucial considerations for those interested in understanding the tax deferral strategies through a Section 1031 exchange.

In late 2017, changes were made to Section 1031 whereby personal property no longer qualified for tax deferral. Only real property exchanges could be deferred under Section 1031, although there may be different rules for what property qualifies for a like-kind exchange for state income-tax purposes. You may be wondering, “So, what are some examples of ‘real property’ and ‘personal property’?”

  • Real property: Some examples of qualified Section 1031 like-kind exchanges of real property are unimproved for improved real estate property, commercial property for residential rental property, and certain leasehold interests in real estate for a fee interest in real estate.
  • Personal Property: Some examples of personal property that is generally not eligible for Section 1031 like-kind exchanges are machinery and equipment, automobiles and other vehicles, and property not considered to be real property.

With these changes, we foresee that many of our clients will continue to be interested in exploring a 1031 exchange of real property. If you have questions about what might qualify as like-kind or are interested in exploring like-kind exchange opportunities, reach out to Daniel at dcurrie@gccpas.net for more information.

You can always count on us to keep you up to date on changing trends, and to provide insightful information for your business decisions. To read Daniel’s article published in The Contemporary Tax Journal, please click here.


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