Like-Kind Exchanges and Property Transactions for CPA REG
By SimplyCPA · 11 October 2026
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- Scope: Since 2018, Section 1031 applies only to real property held for business or investment use — not to equipment, vehicles, shares or property held for sale.
- Deferral, not exclusion: Realised gain is deferred into the basis of the replacement property.
- Boot: Cash, other property or net debt relief received triggers recognition of gain up to the lesser of realised gain or boot received. Losses are never recognised.
- Deadlines: Identify replacement property within 45 days and complete the exchange within 180 days (or the return due date, if earlier).
- Basis of new property: Fair market value of the new property minus the deferred gain.
What qualifies
- Both properties must be real property held for productive use in a business or for investment. Land, buildings, rental houses and commercial property are generally like-kind with one another.
- US real property and foreign real property are not like-kind.
- Property held primarily for sale (dealer property) and personal residences don't qualify.
- Equipment, vehicles and other personal property stopped qualifying from 2018.
Gain realised vs gain recognised
Realised gain = amount realised (fair market value of property received + cash + liabilities assumed by the other party) − adjusted basis of property given up.
Recognised gain = the lesser of realised gain or boot received. Boot includes cash, non-like-kind property and net liability relief.
Example: An investor exchanges land (adjusted basis $300,000, fair value $500,000) for a building worth $450,000 plus $50,000 cash.
Realised gain = $500,000 − $300,000 = $200,000.
Boot received = $50,000 → recognised gain = $50,000 (capital gain on investment land).
Deferred gain = $150,000. Basis of the building = $450,000 − $150,000 = $300,000.
Check: old basis $300,000 − boot received $50,000 + gain recognised $50,000 = $300,000.
Liabilities
- Liability relief is treated as boot received; liabilities assumed are netted against it.
- Cash paid by the taxpayer offsets liability relief, but cash received is never offset by liabilities assumed.
Timing rules
- The replacement property must be identified in writing within 45 days after transferring the relinquished property.
- It must be received within 180 days or by the due date (with extensions) of the tax return for the year of transfer, whichever is earlier.
- Deferred exchanges use a qualified intermediary so the taxpayer never has actual or constructive receipt of the cash.
- Exchanges are reported on Form 8824.
Related parties
If either related party disposes of the exchanged property within two years, the deferred gain is generally triggered.
Holding period and depreciation
The holding period of the old property tacks onto the new. Depreciation recapture potential carries over to the replacement property.
Involuntary conversions (Section 1033)
If property is destroyed, stolen or condemned and the insurance or award proceeds are reinvested in similar property, the taxpayer may elect to defer gain to the extent proceeds are reinvested. The replacement period is generally two years after the end of the year in which gain is realised — three years for condemned business or investment real property.
Pair this with tax consequences of property sales and REG property transactions.