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IRS Issues Final Regulations on 1031 Exchanges

AAFCPAs would like to make clients aware of new IRS regulations which provide guidance related to Section 1031 Like-Kind exchanges. Under the like-kind exchange rules, a taxpayer may defer a gain on a sale of property when they exchange that property for another similar property and certain requirements are met. Under the 2017 Tax Cuts and Jobs Act (TCJA), the IRS limited 1031 exchanges to only those involving real property. Unfortunately, these changes under TCJA created questions and clarity was needed.

Under the new regulations, the IRS defines real property as that which is classified under state and local law. With this clarity, the IRS also confirmed that real property is considered land, and anything permanently attached to it.

Finally, the new regulations clarify the definition of incidental personal property included in a like-kind exchange, for the purpose of determining when such property should not be considered part of the like-kind exchange (i.e. a taxable gain would be recognized). In the new regulations, the IRS states that if personal property is transferred with the real property and does not account for more than 15% of the aggregate fair market value of the replacement property, then it can be ignored for purposes of calculating gain recognition.

The regulations and laws surrounding like-kind exchanges are complex and have strict time frames and requirements to be met.  AAFCPAs encourages clients to contact your AAFCPAs Tax Advisor if you are contemplating a transaction.

If you have any questions, please contact: Daniel Seaman, CPA at 774.512.4025, dseaman@nullaafcpa.com;  David McManus, CPA, CGMA at 774.512.4014, dmcmanus@nullaafcpa.com; or your AAFCPAs Partner.

About the Authors

Daniel Seaman
Dan specializes in providing tax planning & compliance solutions for individuals, families and fiduciaries, helping AAF clients to safeguard and maximize their personal and family wealth.  He advises clients on year-end and multi-year tax planning strategies, including: minimizing the impact of the Alternative Minimum Tax (AMT); planning for mutual fund dividends and capital gains; estate & gift tax planning; maximizing charitable giving strategies; planning for estimated tax payments; minimizing the net investment tax; and minimizing overall taxes between generations of a family. Dan also provides tax planning & compliance solutions for privately-held businesses in a variety of commercial industries, including: high tech, software, manufacturing & distribution, professional services, physicians & private practice, retail and real estate.
David McManus CPA
Dave leads AAFCPAs’ Commercial Tax Practice providing highly coveted tax, entity structure, and business advisory solutions.  He has over three decades of proven experience advising manufacturers & distributors, real estate developers, high tech, bio tech, and renewable energy businesses.