Let’s talk about “like kind” in a 1031 exchange. The Internal Revenue Code provides that a taxpayer may sell property and defer the payment of any capital gains tax if that taxpayer uses the proceeds to acquire like kind replacement property. It is always important to share first, section 1031 of the Code states:
No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.
So, in this discussion I want to highlight what “like kind” really means for the seller of an investment held property. The 1031 exchange IRS uses this term however it is broader than it appears to be. Like Kind is any property that is “held for investment” or “for use in a trade or business”; meaning the property sold must be exchanged for other property that is also “held for investment or for productive use in a trade or business.” Most sellers don’t realize this now gives them the ability to sell one type of property and buy another. Giving examples, a taxpayer can sell land and buy residential OR one can sell commercial and buy multi-family. As well, sell one and buy multiple and ALL are considered like-kind. The problem is how this term is interpreted, most taxpayers think like kind must have the same characteristics, or like a vehicle, be the same make and model. That is not the case. This term should really just state: … if such real property is exchanged solely for real property of which is to be held either for productive use in a trade or business or for investment.
With this being said, a tax payer should always consult with their tax or legal advisors. Knowing the true meaning of like kind gives an investor the opportunity to understand there are many alternatives to diversify with another type of investment real estate in a 1031 Exchange. If you want to know more about the Exchange process or review your options, we are happy to assist.
Sheila Long
Regional Sales Executive | Old Republic Exchange Company
C: 480.341.2032 | T: 480.443.6830 -AZ | T: 818.543.6584 -S.Cal
SheilaL@oldrepublicexchange.com
Old Republic Exchange | Old Republic Insurance Group
With 20 years of RE background in commercial and residential, Sheila is part of the national sales team for a Qualified Intermediary dealing with 1031 exchanges.
Need assistance with your 1031 Exchange or DST? We’ve got you covered!
We’ve prepared a comprehensive, free e-book designed to guide you in achieving your long-term business goals or acquiring that dream property you’ve been eyeing.
Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
The team leverages their extensive knowledge and expertise to help investors and property owners maximize their returns and navigate complex real estate transactions with confidence.
Stay informed with the latest in Commercial Real Estate strategies designed to enhance your income property investment results by bookmarking www.leveragedcre.com. Let us help you stay ahead in the market!