The primary requirements for qualifying an exchange are:
Like-Kind: Exchanged property must be of “like-kind”. Property is generally of like-kind if it is similar in nature or character. This includes personal property used in a trade or business or for investment as well as real property. For real property the like-kind standard is actually quite broad. For example, you may exchange a piece of raw land for a commercial building.
Use Requirement: Taxpayer must hold both property relinquished and received, either for productive use in a trade or business or for investment.
Exclusions: Certain property is ineligible for Section 1031 treatment including: inventory or other property held primarily for sale; stocks, bonds, or notes; other securities or evidences of indebtedness; partnership interests and certificates of trust or beneficial interest.
Time Requirements: First, you must identify in writing the replacement property you wish to acquire within 45 days from the date you transfer the property you now own. Second, you must acquire title to this property within 180 days from the date you transfer the property or by the due date for your tax return (including extensions), whichever is earlier.
If your plans include using the proceeds from the sale of a business or investment property to buy similar property, a 1031 exchange provides greater proceeds for your next investment – far more than you could gain through the re-investment of your after-tax proceeds. There are significant advantages of exchanging. Call us before you consummate a sale, to find out how we can help you save money by structuring an exchange.
