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Personal Property 1031 Exchange FAQ




Q1: What is a personal property 1031 exchange?
It is an exchange under Internal Revenue Code Section 1031of the United States that permits the investors to exchange an existing personal property (relinquished property), for some other more profitable or productive like-kind personal property (replacement property).   

Q2:    Under what conditions do taxpayers prefer personal property exchange to defer taxable gain?
 Taxpayers mostly think personal property as an asset whose value depreciates with time and hence do not accompany any taxable gain. Still, personal property is likely to create taxable gain on sale, if it is held for investment or is used in a business or trade, since it depreciates for book value purposes. Notably, personal property exchange is a feasible solution to defer any such type of taxable gain.   

Q3: what does “Personal property” mean in a 1031 IRS personal property exchange?
It refers to a tangible and intangible property that is not real. One should not confuse it with “personal use property”, which is an asset that the taxpayers used for personal enjoyment.    

Q4: How is a personal property exchange helpful for taxpayers?
It helps the taxpayers such as any individual, a small business, or some institutional taxpayer in deferring the Federal and most instances, state, depreciation recapture as well as capital gain income taxes.    

Q5: What is tangible depreciable personal property?
It is a property with a physical existence; the taxpayer can touch or feel it. Some common examples include aircraft, automobiles, tools, equipment, gold coins and so on. Under the Tax Regulations, the tangible depreciable property is like-kind if both the relinquished or replacement properties are similar and are used identically.    

Q6: What are some examples of tangible personal property in a personal property 1031 exchange?
   It includes numerous property categories such as aircraft, artwork, construction equipment, collectibles, electronic devices, hotel/office furniture, gold coins, locomotive/rolling stock equipment, maritime, medical equipment, livestock, railroad, restaurant equipment, and more.    

Q7: When will a tangible personal property be considered as like-kind?
A tangible property with considered as like-kind if all its items lie in the same General Asset Class. As per the Regulations, there are thirteen such classes, which include automobiles, buses, office furniture, and trailers to name a few.    

Q8: Which type of property is considered as intangible in 1031 personal property exchange?
    Intangible property is one that only exists legally but in real, does not have any physical existence. Some common examples include stocks, copyrights, or internet domain names, among others.


Q9: What are the examples of intangible personal property?
    Categories that fall under Intangible personal property include broadcast, licenses, copyrights, franchise, permits, and patents among others.

Q10: What are the 1031 personal property exchange rules?
In order to perform personal property exchange under Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations, the taxpayer needs to follow certain rules and guidelines. The foremost of these rules is to have a qualified personal property. Other rules demand that the property should be tangible or intangible, and that the personal property must of like-kind.    

Q11: What does the “Qualified personal property” indicate?
It is important for the taxpayer to have held the relinquished personal property for rent, investment, or business. He must also express the intent to keep the like-kind replacement personal property for rent, investment, or business. Properties that adhere to these guidelines are termed as “qualified personal property” for 1031 personal property exchange.    

Q12: What are the guidelines for a property to qualify for personal property exchange?
For a relinquished or replacement property to qualify for personal property exchange, another important condition is that it must be “like-kind” or “like-class”.    

Q13: What does “Like-kind” mean in a personal property exchange?
    Like-kind refers to same assets, such as an airplane in the exchange of another airplane.    

Q14: What does “Like-class” mean in a personal property exchange?
    Like-class refers to tangible and depreciable personal property that fall under the same Product Class or General Asset Class. They also share the identical 6-digit NAISC (North American Industry Classification System) code. A suitable example would be the exchange of an airplane for a helicopter, both of which fall under the same General Asser Class. 

Q15: What are the timing constraints for doing a personal property 1031 exchange?
    The timing rule for this exchange type states that the taxpayer must seal up on the replacement property within 180 days of the transaction of the relinquished property. An important to note here is that the 45-day identification period will be included in this 180-day exchange period. Hence, if a replacement property is assigned after 45 days from the sale of the relinquished property, there are 135 days more for  the taxpayer to close the deal for replacement property.





At Triple Net Investment Group we can assist you in locating a like-kind property for a 1031 exchange and ensure a smooth and successful transaction.

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