Like-Kind Exchanges (Section 1031)
Section 1031 allows taxpayers to defer gain on the exchange of qualifying real property held for business or investment use when replaced with like-kind real property.
Explanation
After the Tax Cuts and Jobs Act, like-kind exchange treatment is limited to real property (no longer available for personal property). The taxpayer must identify replacement property within 45 days and complete the exchange within 180 days. Boot (non-like-kind property received, such as cash) triggers gain recognition to the extent of boot received or gain realized, whichever is less. The basis of the new property equals the basis of the old property, adjusted for boot and recognized gain.
Key Points
- •Limited to real property held for business or investment use
- •45-day identification period and 180-day completion deadline
- •Boot received triggers gain recognition; no loss is recognized
Exam Tip
Gain recognized = lesser of gain realized or boot received. The new property basis = old basis − boot received + gain recognized + boot paid.
Frequently Asked Questions
Related Topics
Property Transactions
Property transactions encompass the tax rules for gains and losses from the sale, exchange, or disposition of assets, including characterization as ordinary, capital, or Section 1231.
Basis Calculations
Basis is the amount of a taxpayer's investment in an asset for tax purposes, used to determine gain or loss on disposition and depreciation deductions.
Test your knowledge
Practice scenario-based questions on this topic with detailed explanations.