3 Common Types of Personal Property Exchanges

Airplane Personal Property Exchange

1031 exchanges are most often used to defer capital gains taxes on the sale of real estate, but many people are unaware that section 1031 can also apply to items of personal property. When done correctly, you can defer your taxes on the sale of your personal property and keep your money compounding and building wealth in a continued investment. In this article, we are going to talk about three of the most common types of personal property exchanges under IRC section 1031.

Aircraft Exchanges

Airplanes, helicopters, and other aircraft can be exchanged under section 1031. Remember that 1031 exchanges only apply to property that is held for investment or business purposes. That means an airplane used primarily for your own personal use would not qualify.

Business Equipment Exchanges

Are you a business owner looking to upgrade your business equipment? A 1031 exchange allows you to sell that old business equipment and upgrade to newer, better equipment for your business. Best of all – you get to defer your capital gains taxes on the sale.

Coins & Precious Metals Exchanges

Numismatic coins, buillion coins, and other precious metals can be exchanged under section 1031. The like-kind requirement is quite strict in this area, so you need to make sure you are exchanging like-kind for like-kind.

Remember the Rules

With any 1031 exchange, it’s important to remember the rules that need to be satisfied in order to complete a successful exchange. Personal property exchanges are often more complex than real estate exchanges because the like-kind requirement is much narrower when it comes to personal property. With real estate, you can exchange most real estate for most other real estate. When it comes to personal property you want to make sure that you’re exchanging within the same general asset class. So you can exchange an airplane for another airplane, but not for business equipment. It’s important to involve a qualified intermediary early in the process to avoid any potential pitfalls.

  • 1031 Hotline: If you have questions about the different types of personal property exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Tips to Remember when 1031 Exchanging Coins & Precious Metals

Gold Bullion Coins

Personal property exchanges can be trickier than typical real estate 1031 exchanges because of the narrowness of the like-kind requirement. That goes doubly for exchanges of coins and precious metals. In this article, we are going to discuss a few things to keep in mind when 1031 exchanging coins and other precious metals.

Numismatic vs. Bullion Coins

There are two basic types of coins when it comes to 1031 exchanges:

  1. Numismatic Coins. These are coins whose value is judged by historical or artistic factors, rather than weight alone.
  2. Bullion Coins. These coins are valued solely by their physical weight or content.

These are hard-lined categories when it comes to 1031 exchanges. You can exchange numismatic coins for numismatic coins, and bullion coins for bullion coins, but not numismatic coins for bullion coins.

Like-Kind Coins & Precious Metals

The biggest concern when exchanging coins and precious metals is the like-kind requirement. Personal property exchanges have a very narrow definition of like-kind (compared to real estate exchanges, which have a very broad definition). To be safe, you want to make sure that you are exchanging out of and into coins of the same metal type – i.e. gold bullion coins for gold bullion coins.

These are a few examples of exchanges that would not be considered like-kind:

  • Currency. You cannot exchange your coins for currency in a 1031 exchange.
  • Different Metal Types. You cannot exchange coins of different metal types.
  • Other Real or Personal Property. You cannot exchange coins for other items for real or personal property.

Numismatic Coin Exchanges

There is some gray area when it comes to numismatic coin exchanges. Specifically, whether or not it’s viable to exchange gold numismatic coins for silver numismatic coins. There are arguments on both sides of this issue. It’s important to talk to a qualified intermediary for advice about your personal property exchange.

  • 1031 Hotline: If you have questions about 1031 exchanges of coins and precious metals, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

The 3 Most Common Types of Real Estate Exchanges

Real Estate Exchange Types

1031 exchanges come in several different types – all of which can be beneficial depending on your unique situation and ultimate goals. In this article, we are going to briefly explain three of the most common types of 1031 exchanges involving real estate.

Forward Exchanges

The forward exchange is the most common and “standard” type of 1031 exchange. This is typically what people picture when they think of 1031 exchanges. In a forward exchange, you sell a piece of relinquished property. Then, you identify replacement property in the 45 days thereafter. Finally, you close on your new replacement property and roll your net proceeds into that property on or before the 180th day following your relinquished property sale.

Reverse Exchanges

A reverse 1031 exchange accomplishes the same ultimate goal of a standard exchange (that of tax deferral) but with the order reversed. Instead of selling the relinquished property first, a reverse exchange starts with the acquisition of replacement property, and ends with the sale of the relinquished property. All time frames are the same. Reverse exchanges are useful in a hot seller’s market when you need to snatch up an ideal property before someone else does.

Build-to-Suit Exchanges

A build-to-suit exchange (also known as a construction improvement exchange) is a 1031 exchange in which the exchangor constructs improvements to their replacement property prior to the closing. This type of exchange is good for people who have found a replacement property that doesn’t quite fit their needs. With a construction exchange, you can make the necessary improvements to your replacement property and include those as a part of your exchange.

  • 1031 Hotline: If you have questions about the different types of 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

 

4 Important Rules to Remember in a 1031 Exchange

1031 Exchange Rules and Regulations

1031 exchanges are excellent tools for deferring capital gains taxes on the sale of real property, but they come with a variety of rules and regulations. In this article, we are going to talk about four of the most important rules to remember when conducting a 1031 exchange of real or personal property.

Rule 1 – Exchange Out of & Into Like-Kind Property

The like-kind property rule is perhaps the most important rule in any 1031 exchange. But what is “like-kind” property? When you’re dealing with real estate, like-kind has a very broad definition that includes basically all real estate (provided it’s held for the right purpose – more on that below). When you’re looking to exchange items of personal property, the like-kind definition gets a lot narrower.

Rule 2 – Hold Your Property for the Requisite Intent

Having the right intent or mindset is also important in a 1031 exchange. All of the property involved in the exchange needs to be held primarily for investment or business purposes, and not personal use. So your primary residence would be excluded from 1031 exchange treatment because of this rule.

Rule 3 – Finish Your Exchange within 180 Days

All 1031 exchanges (whether of personal property or real estate) need to be completed within 180 days after the sale of the relinquished property. The first 45 days of that time period are set aside for identification of the replacement properties into which you plan to exchange.

To figure out your 1031 deadlines, use our helpful calculator.

Rule 4 – Exchange Into Property of Equal or Greater Equity, Value, Debt

You also want to make sure that your replacement property is of equal or greater equity, value, and debt when compared to your relinquished property. This is also known as the “napkin test.”

  • 1031 Hotline: If you have questions about 1031 exchange rules, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Personal Use Rules in a 1031 Exchange of Real Estate

Personal Use Property

Recently, we worked with a client who wanted to 1031 exchange into a replacement property that was ideal for their exchange but had a purchase contract which stipulated that the home may be purchased for primary or secondary use but not income. The client wanted to ensure that there was nothing indicated in the 1031 requirements that might cause trouble down the road. In this scenario, is the replacement property acceptable as long as the client maintains his primary residence and uses the "secondary" residence less than six months out of the year?

Personal Use Requirements

In short, no. Your personal use should be minimal and your primary use should be for rental purposes. There is a safe harbor for properties in a rental pool that permits up to either:

  • 14 days a year; or
  • Up to 10% of the time it is actually rented out.

This tests only the first two tax years after the exchange is completed. See: https://www.irs.gov/pub/irs-drop/rp-08-16.pdf

It is best to purchase a replacement property that will be held primarily for business rental purposes in order to comply with the requirements of Section 1031.

  • 1031 Hotline: If you have questions about personal use property in 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved