1031 Real Estate Exchange Tax Criteria Information
Section 1031 exchanges are tax-free transactions. In order to qualify as 1031 property, the property must be business or investment property, and it must be exchanged for property of like kind. Like kind generally means property with the same nature and purpose as the exchanged property.
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Like Kind Property
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The property exchanged must be used for business or investment. Personal property is generally not like kind property. The property does not need to be the same quality of property as long as it is in the same nature or character.
Is Never Like Kind Property
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According to the Internal Revenue Service (IRS), "Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, other securities or evidence of indebtedness or certain other assets."
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Boot
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Boot, for the purposes of Section 1031, is any money or property received in the transactions which is not considered like kind.
Treament of Boot
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Historically, 1031 transactions never have a recognized loss, but may have a realized loss. A recognized loss is reported to the IRS, a realized loss is a loss actually realized. Any gain from boot is both recognized and realized.
IRS Form
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Once all the criteria for a 1031 transaction is completed, both taxpayers are required to file IRS Form 8824. Form 8824 allows the taxpayer to calculate recognized gains, realized gains and losses and property basis.
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References
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