In this 1031 FAQ video, Jeff Peterson talks about the like-kind requirements of a 1031 exchange. Watch more 1031 educational videos here.
Many people have questions about what is like kind in a 1031 exchange.
There's two major categories - real estate, in which almost all real estate is considered like kind with other real estate. For example, a farm in North Dakota would be like kind to a skyscraper in Manhattan. They're both real estate – brick and mortar. The only difference between those types of property are the grade or quality of the property and probably the price.
The other major category is personal property or chattel such as movable items of furniture, cars, trucks, and business equipment.
In the realm of personal property the like kind requirements are much more stringent. A male bull is not considered like kind to a female cow. An airplane is not considered like kind to a boat. So when we’re exchanging business equipment that often occurs in the sale of a business such as a hotel, or restaurant we need to look at each item of personal property and make sure that it's matching up with a like kind acquisition of new replacement property.
For some assets such as heavy duty trucks and airplanes there are general asset classes in which you can determine if a heavy duty truck is like kind to another general-purpose heavy duty truck. If the items of personal property are not listed in the general asset classes, then we go to the North American industrial classification manual and look at the 6-digit code that’s assigned to that particular piece of property. We want to buy replacement property that's also in the same 6 digit code. Now some pieces of property such as artwork and patents and licenses and things like that don't have a 6 digit product code. At the end of the day you have to eyeball the property to determine if it's like kind. So a patent on a snow cone making machine would be like kind to another patent on a snow cone making machine but maybe would not be like kind to a patent on a nuclear reactor.
- 1031 Hotline: If you have questions about like kind property, feel free to call me at 612-643-1031.
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