Like-kind 1031 Exchange property is property that qualifies for IRS Section 1031 Exchange. The rules state that the property must be held for business use or property that is held of investment purpose and NOT property that you intend to "flip".
Some examples of like-kind property are:
Improved real estate for unimproved real estate.
A leasehold of a fee with 30 years or more to run for real estate. For this purpose, optional renewal periods may be added to the initial term of the lease. See Sale-Leasebacks as Exchanges in Topic 11.
A fee interest in unimproved land for a fee interest in unimproved property subject to long-term income producing condominium leases.
A perpetual water right treated as real property under local law for a fee interest in land.
Timberlands differing in quality and quantity of timber.
Timberland, with a reservation of timber cutting rights, for timberland.
A remainder interest in farmland for a remainder interest in another parcel of farmland.
Farm land belonging to an incompetent for other farm land, even though the exchange took the form of a cash sale and purchase because it involved an incompetent and local law permitted no exchanges by guardians. [v]
In LTR 9851039, the Internal Revenue Service rules that the exchange of an agricultural conservation easement for a farm property qualifies as a tax-free exchange under Section 1031(a). The IRS said a parcel of property was of like-kind when exchanged for a remainder interest in a parcel of property. The parties to the exchange were a trust and a corporation. The corporation had one class of stock. The trust owned most of the shares. The adult son of the trustor owned the rest. The corporation owned a parcel of land that it held as income producing rental property. The trust owned a parcel of property also held as income producing property.
The trust proposed to convey to corporation the property on which its headquarters was located in exchange for a vested remainder interest in the property owned by the corporation. After the exchange, the corporation would continue to use the property it gets in the exchange in its business.
The trust would hold its interest in the property it gets for investment. It would hold it as an income producing property when it ripens into a possessory interest at the end of a seven-year period. The IRS said the term "like-kind" refers to the nature or character of the property, not to its grade or quality. Therefore, certain factors, such as whether the property is improved or unimproved, are not relevant. The IRS said the nature and character of properties exchanged by the trust and corporation would constitute like-kind property. Because the nonpossessory interest would become a possessory interest and therefore, a fee interest, the rights vested in the parties were substantial.
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