What Can't You Exchange Under Section 1031?

When it comes to deferring capital gains taxes via section #1031 of the IRS Code, the items that qualify are quite broad – property that is held for business or investment. So far so good, right? That sounds like it covers just about everything in one way or another.

But not so fast. Even if some things seem to initially appear to meet these general criteria, the item you want to exchange still may not qualify for a 1031 exchange.

So what are these non-exchangeable things?

Things like stocks, bonds, notes, securities and interests in partnerships. Also, other property that is “held primarily for sale,” such as business inventory. That’s excluded, too. The exclusions further extend to things like real estate bought with the intent to flip or vacant land that will be developed with a house.

Which brings up one last important point. A primary residence usually does not qualify for an exchange, since it is not held for business or investment purposes. However, if a portion of your home is used in trade or business, then that portion may qualify.

If a 1031 exchange is in your future, visit our website to learn more about these powerful tax deferral tools and our qualified intermediary and replacement property locator services.