1031 Exchanges of Business Property

Business Property 1031 Exchange

If you're selling real estate everybody knows you can do a 1031 exchange into other like-kind real estate. But what if the sale doesn't involve real estate, but rather the sale of a business? Can you still do a 1031 exchange?

Excluded Property Types

Certain property types are excluded outright from 1031 treatment. For example, the following are excluded from 1031:

  • Stock in a company or partnership
  • The goodwill of a business

Asset Sale

If you're going to do a 1031 exchange in the context of the sale of a business, the only way to really make it work is to do an asset sale rather than sell the business in its entirety. You would sell the assets of the business (such as business equipment), which might involve property that has a long maker's life but which you have rapidly depreciated down in value.

Let's say you're selling a business that has a lot of heavy duty trucks and you have low bases in those trucks but they have retained their value. You may be inclined to do a 1031 exchange on select items of business equipment, particularly if you're thinking about buying or expanding a different business and as part of that expansion.

Like-Kind Considerations

The problem with personal property exchanges of chattel is that you need to be able to match up properties in a much more stringent or strict definition of like kind. A heavy duty truck is like kind to another general-purpose heavy duty truck, but would not be like kind to a printing press, or a cash register, or a boat.

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

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