Details & Requirements
A 1031 Like-Kind Exchange is a transaction in which one investment property is sold and one or more replacement properties are purchased on a tax-deferred basis. A successful 1031 Exchange results in the taxpayer being able to utilize 100 percent of the sale proceeds from the relinquished property, thereby deferring capital gains and recapture taxes ordinarily associated with appreciated investment real estate. This transaction may be completed on a simultaneous or delayed exchange basis.
The following is a partial list of properties that may qualify for a 1031 Exchange:
- Undeveloped land
- Apartments as rental units
- Farm land
- Industrial property
- Office buildings
- Tenants-In-Common investment property
- Residential rentals
- Medical clinic owned by exchanger
Property that does not qualify under IRC 1031:
- Inventory or stock in trade held for sale
- Some securities or other evidences of indebtedness or interest
- Certificates of trust
- Partnership Interests
In order to qualify for a tax-deferred exchange under IRC 1031, both the relinquished property and replacement property must be of “Like-Kind.” The term “Like-Kind” refers to the nature or character of the property and not to its grade or quality. Exchangers must have held the relinquished property for investment or for productive use in their trade or business and must intend to do the same with the replacement property. Exchanges of personal property must be of the same general asset class or the same product class. Consult Northland Securities as well as a qualified intermediary, tax, and legal advisors to assure “Like-Kind” rules are followed.
Real Property qualifies for a tax-deferred exchange under IRC 1031 if both the relinquished property and replacement property are held by the Exchanger for investment purposes, or for productive use in trade or business.
Examples of Real Property “Like-Kind” Exchanges:
- Farm for commercial building
- Undeveloped land for income-producing rental property
- Rental housing units for office building
- Commercial property for apartments
(Please note that the Exchanger’s purpose and intent in holding property is the deciding issue. The type of real property is not a critical issue nor is how other parties utilized the property a critical issue.)
To learn more about a 1031 Exchange, or if you currently own appreciated investment properties, please make sure to consult your tax professional and legal advisor. Northland Securities always recommends working with a Qualified Intermediary (Q.I.) to determine if a property qualifies for Safe Harbor provisions of an IRC 1031 Exchange.
For informational purposes only, Northland Securities does not provide tax or legal advice. Accredited investors interested in a tax-deferred IRC 1031 Exchange should seek advice from their qualified tax and legal advisors. Trusted Advisors will not be compensated by Northland Securities for any 1031 exchanges.
This is neither an offer to sell nor a solicitation to buy any security. Such an offer may be made only by means of an official offering memorandum. Investors should read any offering memorandum and review any risks associated with any offering. This website is incomplete and does not include all material necessary for an investor to make a determination whether to conduct a 1031 Exchange. 1031 Exchange opportunities offered through Northland Securities are available only to accredited investors. Investors must be qualified prior to any discussion of a current or contemplated offering.