Here’s what HIVE AI had to say about “Like-kind exchange rules for business property”:

Like-kind exchange rules for business property

What qualifies after 2017

• Only exchanges of real property held for productive use in a trade or business or for investment qualify for nonrecognition under section 1031. Personal property and most intangibles no longer qualify; exceptions are narrow (e.g., certain mutual ditch/reservoir/irrigation shares treated as real property under state law). Property held primarily for sale and property held for personal use do not qualify. Real property in the U.S. is not like-kind to foreign real property. 1 2 3 4

Like-kind standard for real estate

• “Like-kind” refers to the nature or character of real property, not its grade or quality. Examples of qualifying exchanges include city property for farm property, improved for unimproved, and a fee interest for a leasehold with 30+ years remaining. Life estates under 30 years and certain remainder interests are not like-kind. 4 5

Structures that work: deferred and reverse exchanges

• Deferred exchanges are permitted using a qualified intermediary. You must identify replacement property in writing within 45 days after transferring the relinquished property and receive it within 180 days. 6 5
• Reverse exchanges can qualify if structured as a qualified exchange accommodation arrangement (QEAA) under Rev. Proc. 2000-37 as modified by Rev. Proc. 2004-51. 4

Boot, gain recognition, and basis

• If you receive money or non-like-kind property (“boot”), you must recognize gain up to the amount of boot received; losses are not recognized. Basis in the replacement property generally equals your basis in the relinquished property, decreased by money received and increased by money paid. 1 4 3

Related-party restrictions

• If you exchange with a related person and either party disposes of the property within 2 years, nonrecognition is denied and gain/loss is recognized as of the disposition date. “Related person” is defined by sections 267(b) and 707(b)(1). Transactions structured to circumvent these rules (e.g., through intermediaries) are not respected. 7 6

U.S. vs. foreign real property

• U.S. real property is not like-kind to foreign real property. An exchange of U.S. real estate for foreign real estate is taxable, with limited exception for condemnations under separate rules. 4 2

Reporting and forms

• Use Form 8824 to report the exchange and carry basis/gain info through to Form 4797 or Schedule D as applicable. For trade/business real property, any recognized gain from the exchange flows to Form 4797. 8

Identification and receipt timelines

• Replacement property must be identified within 45 days of transferring the relinquished property. You may identify up to three properties regardless of value, or any number whose aggregate FMV does not exceed 200% of the relinquished property’s FMV. The exchange must be completed (property received) by the earlier of 180 days or the return due date (including extensions). Incidental property not exceeding 15% of the larger property’s FMV is not treated as separate for identification. 5

Interaction with depreciation and section 179

• For depreciation, replacement property obtained in a like-kind exchange is generally treated as “replacement property” with exchanged basis continuing the original placed-in-service date for the exchanged-basis portion, and a new placed-in-service date for any excess basis. You can elect out and treat as a disposition with new placed-in-service dates by statement under Reg. 1.168(i)-6(i). 9 10
• Section 179 on property acquired via a like-kind exchange is limited to the “excess basis” (cash or additional cost beyond carryover basis). 3

Special cautions and edge cases

• Incidental personal property: Proposed and final guidance recognizes that small amounts of incidental personal property transferred with real property may be disregarded in certain contexts; receipt of non-like-kind property is boot and can trigger gain. 5 1
• Consolidated groups: Intercompany gain deferral interacts with 1031; “successor asset” rules can carry intercompany gain into replacement property. 11
• Related-party exchanges via intermediaries can be challenged; ensure no plan to dispose within 2 years and avoid structures that effectively swap basis to facilitate a sale. 6 7

Practical steps to execute a compliant 1031 for business real estate

Pre-exchange planning

• Confirm held-for-investment or trade/business use; exclude inventory or personal use property. 1
• Decide QI structure and calendar 45-day identification and 180-day receipt deadlines; prepare identification under the 3‑property or 200% rule. 5 6

Transaction mechanics

• Use a qualified intermediary and avoid constructive receipt of proceeds; consider a QEAA for reverse exchanges. 4 6

Post-exchange accounting and filing

• Compute basis split between exchanged basis and excess basis; consider 1.168(i)-6(i) election for depreciation timing; limit any section 179 to excess basis. 10 3
• Report on Form 8824 and, if gain recognized, carry to Form 4797 or Schedule D as applicable. 8

If you share the facts (type of relinquished and replacement property, dates, values, debt payoff/new debt, and whether any boot will be received), I can model recognized gain, replacement basis (exchanged vs excess), depreciation elections, and a compliance timeline.

Sources

1 – IRS.gov – Like-kind exchanges – Real estate tax tips 📄 Summarize
2 – IRS IRM 21.8.5 Miscellaneous Foreign Investment in Real Property Tax Act (FIRPTA) Related Issues 📄 Summarize
3 – IRS – Publication 225 Farmer’s Tax Guide 📄 Summarize
4 – IRS – Publication 544 Sales and Other Dispositions of Assets 📄 Summarize
5 – REG-117589-18 📄 Summarize
6 – Rev. Rul. 2002-83 📄 Summarize
7 – IRC § 1031(f) 📄 Summarize
8 – IRS – Instruction 4797 Instructions for Form 4797, Sales of Business Property 📄 Summarize
9 – Regulation 107892-18 📄 Summarize
10 – IRS.gov – Instructions for Form 4562 (2024) 📄 Summarize
11 – Treasury Regulation 1.1502-13 📄 Summarize

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