The 1031 Exchange Institute

Welcome to The 1031 Exchange Institute™. The 1031 Exchange Institute is your complete online resource for 1031 exchange, 1033 exchange, 1034 exchange, 721 exchange, 453 installment sale and 121 exclusion information.  Information will also be provided regarding Self-Directed IRAs, including Traditional IRAs, ROTH IRAs, SEP-IRAs and SIMPLE IRAs. 

The 1031 Exchange Institute is dedicated to educating and informing real estate investors and their advisors on the benefits of 1031 tax-deferred exchanges and other tax deferred and tax exlcusion strategies so they can make better informed investment decisions.

1031 Exchange Discussion Forum > What Are Like-Kind Commercial Properties in a 1031 Exchange?

A 1031 exchange—also known as a tax deferred exchange—is a financial mechanism for acquiring investment properties without paying federal taxes and most state taxes. Although the tax obligation is not eliminated, it is deferred until the owner of a 1031 property sells it in a traditional sale. If and when the property is sold, the owner pays taxes on the deferred capital gain from the original transaction and additional any gain that has accrued in the meantime.

Because they involve properties that share important similarities, 1031 exchanges are also known as “like-kind” exchanges. If an owner of a strip mall and the owner of a pay parking lot agreed to buy each other’s properties, the transaction could occur as a like-kind exchange. Both properties are investment real estate—a trait that makes them alike in the eyes of the IRS. Consulting the definition of like-kind is the best way to determine whether properties are alike.

Defining Like-Kind

The U.S. tax code does not give a definition for properties that are alike. But Treasury Regulation § 1.1031(a)-1(b) defines 1031 properties as being alike in “nature or character,” but not necessarily in “grade or quality.” This means that a sparkling new strip mall could be exchanged for an old parking lot that needs a new security fence. The character of the commercial income properties is the same, as both are forms of real investment property, but their quality is different.

The concept of like-kind is relatively lenient for a reason: If residential and commercial income properties were required to be more similar to each other to be eligible for a drop and swap transaction, opportunities for 1031 exchanges would sharply diminish, and proving like-kind status could require the assistance of an attorney, which would present a financial obstacle to the exchange.

Initiating an Exchange

If you need to initiate an exchange of residential or commercial income properties, Westwood Net Lease Advisors—an industry-leading broker of triple net lease real estate and 1031 properties—is here to help. With our unprecedented access to on-market and off-market 1031 opportunities, we will assist you with finding properties that meet your investment needs and help you with every step of the transaction process.

To discuss your investment needs, please call Chris Schellin, president of Westwood Net Lease Advisors at 314-563-2208, cschellin@westwoodnetlease.com, or visit http://www.westwoodnetlease.com/about-us/contact/ to use our contact form.
April 30, 2013 | Unregistered CommenterChris Schellin