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,;  David McManus, CPA, CGMA at 774.512.4014,; or your AAFCPAs Partner.

About the Authors

Daniel Seaman
Dan is a leader in AAFCPAs’ Tax Practice advising select clients, including high-net-worth individuals along with their families and business interests. He works extensively with AAF Wealth Management clients, helping to ensure the seamless execution of their holistic financial plans. He navigates the intricacies of compliance, taxation, wealth optimization, asset protection & privacy. Since joining the firm in 2007, Dan has embraced AAFCPAs’ integrated service model as key to client success. He recognizes that this combination of tax and wealth management expertise leads to better-informed decisions, increased tax efficiency, and an enhanced client experience—all contributing to greater success in achieving a clients' financial goals.
David McManus CPA
Dave leads AAFCPAs’ Cannabis Business Practice, providing highly coveted tax, entity structure, and business advisory solutions.  Dave has been deeply immersed in understanding the complex financial and operational nuances of the cannabis industry since 2012. He advises multi-state operators, recreational and medical retailers, cultivators, product manufacturers, and investors. He proactively advises clients on risks, opportunities, and tax implications related to market entry, accounting methods, capital structure, debt financing, R&D, M&A, and goodwill impairment. He has led industry training sessions on interpreting and implementing new federal and state marijuana statutes, including compliance with 280E. Dave maintains a strong network of cannabis industry investors, attorneys, bankers, employee compensation and benefits providers, realtors, risk managers, and insurance agents, and he leverages these resources as appropriate to help clients achieve success.