We have talked a lot about 1031 exchanges involving real estate on this site, but real estate is not the only thing that can be exchanged in a 1031. Art, precious metals, aircraft, and heavy business equipment can also be 1031 exchanged. In this article, we will discuss the benefits of using a 1031 exchange to defer the capital gains taxes on your heavy equipment.
Heavy Equipment 1031 Exchanges
Compared to real estate, the IRS depreciation schedules allow for much more rapid depreciation of business equipment. This allows you to recover your cost of investment much more quickly.
It also has the effect of quickly reducing your tax basis down to zero. Remember, your gain is determined by subtracting your sale price (amount realized) by your adjusted basis. If your basis is at or near zero that means nearly all of the sale proceeds would be subject to capital gains tax.
Because heavy equipment generally has a long life, it typically lasts longer than the depreciation schedule. That means you could get taxed heavily on your heavy equipment (unless you use a 1031 exchange).
Defer Capital Gains Taxes with a 1031 Exchange
You can defer these capital gains taxes indefinitely by conducting a 1031 exchange on the disposition of your business equipment. Your personal property that has been used for investment or in a trade or business can be exchanged for other like-kind personal property.
These types of exchanges must abide by the 180 day / 45 day rule, as is the case with most 1031 exchanges.
The like-kind requirements are more stringent for business equipment (than for real estate), so be sure to check with us before you agree to sell your old property. A heavy general purpose duty tuck is like-kind to another heavy general purpose duty tuck, but would not be like-kind to a car or helicopter. So you need to match-up your new purchases with the type of properties that you are selling in order to meet the requirements of Section 1031.
- 1031 Hotline: If you have questions about 1031 exchanges of heavy equipment, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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