What is Like-kind exchange (Section 1031)?
In short
A like-kind exchange under Section 1031 defers gain or loss when real property held for business or investment is exchanged for other real property held for business or investment.
Key takeaways
- Since 2018 only real property qualifies; personal property such as equipment doesn't.
- Gain is recognized to the extent of boot (cash or other property) received.
- The new property's basis is the old basis plus gain recognized minus boot received.
Example
A building with a $200,000 basis is exchanged for a building worth $300,000 plus $50,000 cash: gain of $50,000 is recognized and the new basis is $200,000.
Where it's tested
REG: Property Transactions: Gains, Losses & Like-Kind Exchanges — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
In a Section 1031 exchange, a taxpayer's realized gain is $80,000 and the taxpayer receives $30,000 of cash boot. How much gain is recognized?