Page 5 - Old Republic Title Exchange

LIKE-KIND
A WORLD OF POSSIBILITIES

3 Requirements to Defer Capital Gains Tax Under Section 1031
1. The property disposed of and the property received must be held Examples of Like-Kind Real Property:
for productive use in a trade or business or for investment.
Commercial building for a ranch or farm
Property held primarily for sale does not qualify. An example of this is
real property held for sale to customers in the ordinary course of a trade
or business, commonly referred to as “dealer property.” A leasehold interest of 30 years or more
for a fee interest rental
2. The property disposed of and the property received must be of
“like-kind”. Rental house for farmland

Like-Kind Real Property: Like-kind does not mean that the property
sold and the property acquired must share the same physical Improved real property for unimproved
characteristics. Instead, “like-kind” simply refers to the requirement real property
that property “held for investment or for productive use in a trade or
business” must be exchanged for other property that also is “held for Conservation easement in one farm for fee
investment or for productive use in a trade or business”. In other words, interest in another farm
an apartment building need not be exchanged for another apartment
building. It can be exchanged for raw land, a farm, a duplex, retail A utility easement for a utility easement
property, industrial property, a perpetual conservation easement, a
leasehold of 30 years or more, etc.

3. There must be an “exchange” as distinguished from a “purchase and sale”.

A sale of property and a reinvestment of the proceeds into another property will not qualify as an exchange under section
1031. The essence of a sale is the receipt of cash for property; whereas the essence of an exchange is the transfer of
property between owners, where each party to the exchange gives up a property interest in return for a new or additional
property interest.

There are four methods of exchanging: simultaneous exchange, forward exchange, reverse exchange, and construction/
improvement exchange (see pages 5-8 for methods of exchanging).

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