Note: With the passage of the Tax Cuts & Jobs Act of 2017, 1031 exchanges of personal property are no longer valid.
A 1031 exchange is most commonly thought of for investment real estate. However, business equipment can also qualify for non-recognition treatment under Section 1031.
Business Asset 1031 Exchange
A company can benefit greatly from knowing how to use Section 1031 like-kind exchanges during the sale and purchase of business assets (particularly in the telecommunications industry). If you have taken advantage of rapid deprecation or bonus deprecation, then the basis of your relinquished property may be very low, while the market value is still quite high. Personal property with a longer maker’s life and a fast deprecation schedule make ideal candidates for 1031 exchanges.
What Business Assets can be Exchanged?
Telecom-equipment is considered personal property which depreciates faster than real estate and therefore the advantages of deferring the gains are much more profitable.
In the Television and Radio arena, the Internal Revenue Service has given guidance on full Station Swaps involving FCC licenses and other equipment.
In the area of Mergers and Acquisitions, 1031 like-kind exchanges can give you an advantage over competitors, if you are buying (like-kind components) with tax-free-dollars rather than paying with after-tax-dollars.
Railroad cars can also benefit from 1031 exchange treatment.
Determining Like-Kind in a 1031 Exchange
To determine if an exchange is like-kind, the entire mixture of assets of one business cannot be grouped into one single exchange. Instead an asset-by-asset analysis has to be conducted to make sure that like kind properties match up.
Contact a 1031 Intermediary
Give us a call today at our Minneapolis office to discuss the ins and outs of 1031 exchanges when it comes to business assets - 612.643.1031.