Qualifying Transactions
Under Internal Revenue Code Section 1031, you may not have to pay tax on a gain realized on the exchange of certain properties held either for an investment or for use in a trade or business. These exchanges are typically known as "like-kind exchanges," if the three conditions below are met:

  • The transaction is an exchange.
  • Property is like-kind property.
  • Both property transferred is used for trade, business or for investment.

Qualified exchanges will allow you to defer the gain; however, losses are not deductible unless you give up "unlike" property. The term "like-kind" refers to the nature of the property, not the condition. For example: real estate for real estate, computers for computers and machinery for machinery all qualify. It does not matter as to the condition, age, quality or brand of the property as long as they are from the same type of class. Land trades can be made for other land lots, buildings, farms, real estate and city lots and still maintain the qualified status.

Qualifying Property for the Like-Kind Exchange:

  • Real estate
  • Machinery
  • Equipment
  • Office furniture
  • Computers
  • Most other real and personal property (used for income or investment purposes)

Non-Qualifying Property:

  • Inventory of a business
  • Notes
  • Securities
  • Partnership interest
  • Certificates of trust
  • Foreign real estate
  • Property used for personal purposes
  • Livestock of different sexes
Liabilities & Boot

Related Articles
  1. Taxes

    10 Things to Know About 1031 Exchanges

    Real estate swaps grow popular, but traps are many. Beware new rules on vacation homes.
  2. Taxes

    How To Prevent A Tax Hit When Selling A Rental Property

    Rental property ownership has its benefits but when selling you can face a big tax hit. Thankfully there are ways to reduce your capital gains exposure.
  3. Taxes

    Getting U.S. Tax Deductions On Foreign Real Estate

    If your home or second home is not in the United States, you can still get U.S. tax deductions. How many and what kind depends on whether you also rent it.
  4. Taxes

    Sell Your Rental Property For a Profit

    Being a landlord can be taxing, especially when you want to sell. Find out how to reduce your burden.
  5. Investing

    Your Property Tax Assessment: What Does It Mean?

    The amount of a property tax bill is based on the property’s value, the exemptions it qualifies for, its use and the local property tax rate.
  6. Investing

    Flipping Houses: Is It Better Than the Buy and Hold Strategy?

    Real estate investors can choose to flip a property or hold it. Find out which strategy may best for you.
  7. Investing

    A Guide to Real Estate Investing

    Investing in real estate is a popular choice for good reasons, but it's more complicated than owning your typical stocks and bonds.
  8. Investing

    Investing in Property Out of State

    If you can't afford property close to home, consider taking the real estate plunge elsewhere in the country.
  9. Investing

    7 Steps to A Hot Commercial Real Estate Deal

    For savvy real estate investors, times of lower prices reveal investment opportunity.
Frequently Asked Questions
  1. When are Beneficiaries of a Will Notified?

    Learn when the beneficiaries of a will must be notified, and understand how this requirement varies depending on whether ...
  2. Why Does Larry Page Pay Himself a $1 Salary?

    Google co-founder Larry Page continues to take an annual salary of only $1 as chief executive officer.
  3. What is Common Stock and Preferred Stock?

    Learn about the differences between common and preferred shares. Explore situations where preferred shares have more favorable ...
  4. Can CareCredit be Used for Family Members?

    Learn more about the available options that CareCredit offers to pay for out-of-pocket medical procedures with little to ...
Trading Center