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Income taxSubject 17 of 19

Like-kind exchange

A like-kind exchange is a tax-deferred exchange under Internal Revenue Code section 1031 for qualifying real property held for investment or productive use in a trade or business.

Also called: 1031 exchange, section 1031 exchange

Direct answer

What does like-kind exchange mean?

A like-kind exchange is a tax-deferred exchange under Internal Revenue Code section 1031 for qualifying real property held for investment or productive use in a trade or business.

Exam cue: Section 1031 now applies only to real property. The investor must identify replacement property within 45 days and complete the exchange within 180 days.

What does it look like in a question?

Example

An investor exchanges one rental property for another through a properly structured transaction.

Common exam trap

What should you not confuse it with?

A personal main home or property held primarily for sale does not automatically qualify.

Related income tax terms

Adjusted basisAdjusted basis is the original basis increased or decreased by tax-law adjustments such as qualifying improvements and allowed depreciation.Amount realizedAmount realized is the total value received on a disposition, adjusted for selling expenses and other items as tax law provides.BasisBasis is a tax measurement used to determine gain, loss, depreciation and other tax consequences for property.Capital gainCapital gain is the gain from the sale or exchange of a capital asset, calculated under tax law and subject to classification and exclusions.Depreciation recaptureDepreciation recapture is the tax rule that can recharacterize or specially tax part of gain tied to prior depreciation deductions.Principal residenceA principal residence is a person's main home for tax purposes, determined from use and the applicable facts and rules.
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