1031 Exchanges of Same Sex Animals

1031 exchange of same sex animals

In this article, we are going to be talking about the 1031 exchange of breeding stock: llamas, racehorses, and other animals that would be held by an agricultural producer.

These animals would not be held as inventory or as products that would be sold to the public. They are held to breed and produce other animals that may be sold. So, we are talking about the animals that are kept not necessarily for sale to the public, but to produce other animals that may be sold. Also, we are talking about animals that are used in one’s trade or business. If you race horses, then the horses that you keep in your racing stable are not used for the production of other animals. They are actually used in your trade or business.

Like-kind Personal Property Exchange Standards

So, what do we need to know in order to conduct a 1031 exchange on animals? The first thing is that we are in the realm of personal property or chattel. So, we know that the like-kind requirements are going to be more stringent than real estate. For example, we need to stay in the same species. A cow can be exchanged for another cow, a horse can be exchanged for another horse, and, of course, a llama for another llama.

Gender Absolutely Matters

Even more than that, we need to stay in the same gender. A male bull will not be considered like-kind with a female cow [See IRC Section 1031(e) Exchanges of Livestock of Different Sexes]. You may ask yourself: 

“What about the grade or quality of the animals? Is an old or dilapidated horse going to be considered like-kind with a brand new stallion that is of the highest quality?"

The quality does not matter. What really matters is the species and the gender. In one famous 1031 case, it was held that half-blood heifers were like-kind with three-quarter heifers. So again, the quality is not necessarily important. What is important is that we are talking about the same gender and the same species.

Keep Your Money Working for You

Section 1031 is a very broad provision. It allows you to defer the taxes when you sell property that has been held for investment or for use in a trader business. That includes livestock (breeding stock). So, if you have animals, and the sale of those animals will result in large gains, we can defer those gains indefinitely by structuring the transaction as a 1031 tax deferred exchange. That is going to allow you to continue to compound and build your wealth. The time value of that money that would otherwise go out the door in taxes is very important because rather than sending that money to Uncle Sam, you get to use that money to buy other like-kind property - more horses, more llamas, more animals of like-kind. The net result is you are keeping your money working for you in your business and in your investments. Over a period of time, that will have a substantial effect on your net worth because the less money you pay in taxes, the more money you have to expand your business and investments.

  • 1031 Hotline: If you have questions about same sex animal 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.


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