1031 exchanges are also often referred to as “like-kind” exchanges because all property involved in a 1031 exchange must be like-kind. But what exactly does that mean? In this article, we are going to talk about what types of property are not considered “like-kind” in a 1031 exchange.
Real Property vs. Personal Property
The first thing we need to discuss is the difference between real property and personal property. Prior to the Tax Cuts and Jobs Act, you could do 1031 exchanges involving personal property such as aircraft, numismatic coins, artwork, and more. That is no longer the case. 1031 exchanges can now only be done with real estate.
In the realm of real estate, which is where all current 1031 exchanges operate, the definition of “like-kind” is quite broad. In essence, all US real estate is like-kind to all other US real estate.
That being said, it’s important to remember that there are other restrictions and requirements in a 1031 exchange when it comes to real estate. Not only does the real estate need to be like-kind; it also needs to be held for a qualifying purpose (that of business or investment). You cannot exchange a primary residence that you use as your family home in a 1031 exchange because that is held for personal use and not business/investment use.
Compound Your Wealth Over Time with a 1031 Exchange
1031 exchanges allow you to defer your capital gains taxes on the net proceeds of qualifying real property as long as you reinvest those proceeds into like-kind replacement property. This initial tax deferral is great, but the real benefit of section 1031 is that it allows you to keep your money working or you over time – compounding and building wealth long into the future. If you’re curious about 1031 exchanges and want to know if your property qualifies, contact the qualified intermediaries at CPEC1031, LLC today to learn more about what we do and how we can help. Reach us at our downtown Minneapolis office to set up a time to speak with our team!
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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