What Qualifies for 1031 Exchange?
The classification of properties exchanged determines if the property qualifies for Section 1031 treatment. A. The IRS’s 4 classifications of Real Estate: • Property held for personal use. (Personal Property) • Property held primarily for sale. (Dealer Property) • Property held for productive use in a trade or business. (Business Property) • Property held for investment. (Investment Property) The last two qualify for Section 1031 tax deferral, the first two do not. Both the property received and the property sold must be of “Like Kind”. It is your use of the property that determines its classification. What the other party does with the property does not affect your tax status. B. Like-Kind Property • Like-kind refers to your use of the property and not to its grade or quality. • “1031” property may be mixed as to type and still be like-kind. As an example, you may exchange land for a duplex, or a commercial building for a retail store, etc. (See page 14.) • Property held outside the U
