Like-Kind Exchanges: Qualify as a Valid Section 1031 Exchange

Author: Jennifer Kowal

Like-kind exchanges, that is exchanges of property used for business or held as an investment solely for other business or investment property that is the same type or “like-kind", have long been permitted under the Internal Revenue Code. Generally, if the exchange meets the requirements of I.R.C. section 1031, the taxpayer will not be required to recognize a gain or loss. If, as part of the exchange, the taxpayer also receives other (not like-kind) property or money, it must recognize a gain to the extent of the other property and money received, but can never recognize a loss. Under the Tax Cuts and Jobs Act, Section 1031 now applies only to exchanges of real property and not to exchanges of personal or intangible property.

This on-demand course will provide instruction on the requirements to qualify as a valid Section 1031 exchange, including how to calculate any gain when boot or debt is involved in the exchange. It will also cover basis consequences of section 1031 exchanges and the Treasury Regulations allowing deferred exchanges.

Publication Date: October 2019

Designed For
Tax practitioners of all levels who provide advice and return preparation involving like-kind exchanges.

Topics Covered

• Basic Requirements of Section 1031
• I.R.C. Section 1031
• Key Requirements
• Gain Recognition and Boot
• "Inventory" Type Property ‐ Excluded
• Disregarded Entities
• "Like‐Kind"
• Held for Trade or Business or Investment
• Vacation & Second Homes
• Cases re. Homes
• Same Taxpayer
• How long to hold?
• Swap and Drops
• Same Taxpayer Issues
• "Exchange"
• Deferred Exchanges
• Typical Exchange Structures
• Forward Exchanges
• Requirements for a Forward Exchange
• "Identification" of Replacement Property
• Problems With Delayed Exchanges
• Reverse Exchanges
• Related Party Exchanges
• Boot and Gain and Effects of Debt
• Basis
• Debt Encumbrances
• Examples

Learning Objectives

• Describe the rules for qualifying an exchange as a like-kind exchange and the definition of "like-kind"
• Recognize the effects of debt and boot on non-recognition, and how to calculate gain in context of a section 1031 exchange
• Discuss the use of qualified intermediary or escrow agent for deferred exchange
• Calculate basis of replacement property acquired in like-kind exchange
• Recognize current developments in like‐kind exchanges

Level
Basic

Instructional Method
Self-Study

NASBA Field of Study
Taxes (2 hours)

Program Prerequisites
None

Advance Preparation
None