Last week, the Treasury Department and Internal Revenue Service issued final regulations relating to section 1031 like-kind exchanges. These final regulations address the definition of real property under section 1031 and also provide a rule addressing the receipt of personal property that is incidental to real property received in a like-kind exchange.
According to Coleen Danaher, Regional VP of Business Development at JTC Americas, the final regulations give “clearer clarification of what is like kind to real estate.”
“The industry has been waiting for this to be defined since 2017/18 once the Tax Cuts and Jobs Act was passed and 1031 were changed to only real estate,” added Justin Amos, Account Executive, 1031 Specialist at JTC Americas.
“The final regulations provide a broader definition of real property. Maintaining continuity by classifying State and local law as the most important factor for determining whether property represents real property under section 1031. Taxpayers still should assess on a case by case basis and consult with the appropriate advisors to make sure it qualifies,” added Justin.
As noted by the IRS, real property includes land and generally anything permanently built on or attached to land. In general, real property also includes property that is characterized as real property under applicable State or local law. In addition, certain intangible property, such as leaseholds or easements, qualifies as real property under section 1031. Property not eligible for like-kind exchange treatment prior to enactment of the TCJA remains ineligible. Neither the TCJA nor the final regulations change whether the properties exchanged are of like kind.
1031 exchanges are well known for their tax deferral benefits — essentially, if you’re planning to sell one business or investment property and purchase a different property, structuring these two transactions as a 1031 exchange can enable you to defer capital gains tax and depreciation recapture tax.
What can we help you exchange?
At JTC Americas, we’ve put together an industry-leading track record of 1031 success, across tens of thousands of transactions and more than 25 years in the business. Our legal and Client Services team have decades of experience handling 1031 exchanges. And we’ve built a cutting-edge administration platform, called eSTAC®, from the ground up to maximize your transaction security and transparency.
If you’re considering a real estate exchange, you’ve come to the right place. Schedule a free consultation (with no obligation).