Like-Kind Property in 1031 Exchanges
A 1031 exchange allows real estate investors to swap out rental property for other property and defer paying taxes on it. This can happen as long as a like-kind property is purchased using the profit received from the purchase of investment property. What exactly does “like-kind” mean? Diversified Investment Strategies is here to help you understand!
The IRS Code Section 1031, which 1031 exchanges are named after, states that property held for use in productive trade or business, or property held for investment, is potentially exchangeable. Like-kind refers to the nature of the investment rather than the form. Any investment property can be exchanged with other investment property. For example, a single-family residence can be exchanged for a duplex, land, apartment building or a combination of these.
In order for a 1031 exchange to be 100 percent tax deferred, the investor must acquire a replacement property or properties that is of equal or greater value, and equal or greater in debt (loan) and spend all of the net proceeds from the relinquished property.
What is not included in a like-kind transaction is partnership shares, notes, stocks, bonds, certificates of trust or other such items. You also cannot trade investment property for a personal residence, or property in a foreign country or “stock in trade.”
Therefore, like-kind property refers to property of the same nature, character or class. It does not mean quality or grade. Like-kind property that can be exchanged under the current meaning of Code Section 1031 can include commercial, single-family rental property, condos, raw land, apartments, vacation homes, second homes, duplexes and industrial properties, as long as it is held for investment and not personal use.
While like-kind exchanges don’t have to be simultaneous swaps, you must meet two time limits for the sale to not be taxable. You have 45 days from the date you sell the relinquished property to identify potential replacement properties, and you have 180 days after the sale to complete the exchange. More about this can be found on our FAQs page.
Interested in exchanging your investment property with like-kind property in a 1031 exchange so that you can defer paying taxes on the property? Diversified Investment Strategies is here to help! Our comprehensive team can provide you with solid information and analyses, backed by years of experience and expertise. Contact us for a complimentary consultation!
Bryan Hakola
Diversified Investment Strategies
Visit Our Website
Learn About Your Investment Options
Become Our Facebook Fan
Follow Us on Twitter
Connect on LinkedIn