Exchanging Real Estate That Includes Personal Property

One of the most basic tenets of every #1031 exchange is that the relinquished property and replacement property must be “like kind.” Unfortunately, when real estate is involved in the exchange, there is a fairly common issue that investors unwittingly run into. It comes up when personal property is included in the deal.

This most commonly occurs when an asset like an apartment building (that includes household appliances such as refrigerators, washers or dryers) is exchanged for other real estate that may or may not include like-kind items of personal property. While the real estate itself (both the relinquished and replacement properties) is considered “like kind,” if one or the other does not contain “like kind” personal property, then the tax-deferred nature of the transaction is in jeopardy.

While there is an “incidental property” exception in Sec. 1.1013(k)-1(c)(5)(i), this only applies to the identification of the property within the time constraints of the exchange – not the “like kind” nature of the property. To ensure the full tax-deferral of the exchange, any amount of personal property that is transferred or received along with the real property must be met with like-kind or like-class personal property in the other property to meet all the 1031 requirements.

To find out how we can help you find and close on your next 1031 exchange property or to learn more about the exchange process and our qualified intermediary services, please visit our website.