All qualifying real property located in the United States, improved or unimproved, is like-kind property (Regulation Section 1.1031(a)-1(b)). However, real property located in the United States is not of like-kind to property located outside the United States (Code Section 1031(h); Private Letter Rulingss 200041027, 200201007).
Practitioners should watch for hidden personal property in a like-kind exchange of real property, particularly appliances and furniture included in apartment buildings or rental homes, kitchen delivery and office equipment in commercial buildings or motels, and single purpose agricultural structures in farm land swaps. Practitioners should also inquire about any cost segregation studies that may have been done in which building costs have been reallocated to Code Section 1245 assets.
The IRS issued final regulations (T.D. 9935) that implement the TCJA limitation of like-kind exchange treatment to exchanges of real property, generally effective for exchanges completed after December 31, 2017. Given the added significance of determining whether property is real property as a result of the TCJA amendments to Code Section 1031, the final regulations provide guidance on whether property is real property for purposes of the like-kind exchange rules.
The final regulations specify that the definition of “real property” applies only for purposes of Code Section 1031, and no inference is intended with respect to the classification or characterization of property for other purposes, such as depreciation and Code Section 1245 and Code Section 1250.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 03/21/2021 08:05)