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Study Notes on Exchanges
III. Section 1031 Exchange (Requirements and Definitions)
- Both the property exchanged and the property received must be held by the same taxpayer for productive business use in the taxpayer’s trade or business or for investment.
- The properties in exchange must be like-kind.
- Property must be exchanged.
A sale of property as a transfer in consideration of a concrete price expressed in terms of money.
An exchange is a transfer of property in consideration of the reciprocal transfer of other property, without the intervention of a significant amount of money.
Contractual Interdependence Test.
Integrated Plan Test (also known as result-oriented test).
A test analyzed the form of the transaction to determine whether it can be reduced to a series of interdependent steps.
A test determines whether the taxpayer’s disposition of his or her property and the acquisition of the new property are mutually related parts of an overall plan.
Property used in taxpayer’s trade or business.
Property held primarily for sale to customers.
Property that is used as your principal residence.
Property held for investment.
Property used as a vacation home.
Both the property transferred and the property received in an exchange must be held by the taxpayer either for productive use in his or her trade or business or for investment.
§§1231 and 167.
Note: The phrase has not been defined by either the Code or the regulations, nor has there been any significant guidance from the Courts.
The property is owned by the taxpayer for at least 24 months immediately before the exchange.
Within the qualifying use period, in each of the two 12-month periods immediately preceding the exchange.
- The taxpayer rents the property to another person or persons at a fair rental for 14 days or more, and
- The period of the taxpayer’s personal use of the property does not exceed the greater of 14 days or 10% of the number of days during the 12-month period that the property is rented at a fair rental.
The length of the rental,
the substance of the transaction,
the existence of a prearranged exchange,
and the taxpayer’s complete documentation of their rental efforts.
It may disqualify a 1031-exchange.
A state of mind or intention in question with regard to the property disposed of or holding at the time of the exchange.
No, because it is a taxpayer-by-taxpayer application.
A rollover provision under which gain was not recognized if the taxpayer purchases a new residence in which they principally reside within twenty-four months before or after the sale of the old residence.
The taxpayer had to buy or occupy a replacement residence within this period.
The sale of date, in most cases, was the date of sale closed and title passed to the buyer.
Depreciable tangible personal property, or intangible and non-depreciable personal property.
Personal Property.
Real property held primarily for sale.
Property disposition will be fully treated as ordinary income without capital-gain deduction benefits and depreciation is disallowed to the taxpayer as well.
Nature or character of the property.
Any right to recover damages for a tortuous wrong or breach of contract.
A six-digit product coding system.
A multiple asset exchange.
Depreciable tangible personal property.
Asset affixed to land.
Movable items.
1). Derives its value from real property or an interest in real property,
2). is inseparable from that real property or interest in real property, and
3). does not produce or contribute to the production of income other than consideration for the use or occupancy of space.
Example: license or permit
