In a 1031 Exchange, property held for personal use can not be exchange for property held of productive use because personal use property is not considered like-kind with productive use property. In a property exchange, you must exchange like for like. Here is an excerpt from our 1031 Exchange Knowledge base:
The nonrecognition rules of §1031 do not apply to an exchange of one kind or class of personal property for personal property of a different kind or class. However, there’s an important exception to the personal property rules related to deferred exchanges of real estate. It’s explained in Chapter Five. The exception defines incidental personal property transferred with real property in a §1031 exchange.
Depreciable tangible personal property may be either “like-kind” or “like class” to qualify for nonrecognition treatment. Personal property of a like class is considered to be of a “like-kind.” Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class.
General Asset Classes describe the types
of property frequently used in many businesses. They include:
Office furniture, fixtures, and equipment,
Information systems (computers and peripheral equipment),
Data handling equipment (except computers),
Airplanes (airframes and engines), planes used in commercial or contract carrying of passengers or freight, and all helicopters (airframes and engines),
Automobiles, and taxis, Buses,
Light general purpose trucks,
Heavy general purpose trucks,
Railroad cars and locomotives (except those owned by railroad transportation companies),
Tractor units for use over the road,
Trailers and trailer-mounted containers,
Vessels, barges, tugs, and similar water-transportation equipment (except those used in marine construction), and
Industrial steam and electric generation or distribution systems.
Product classes include property listed in a 4-digit product class (except any ending in “9”, a miscellaneous category) in Division D of the Standard Industrial Classification codes of the Executive Office of the President, Office of Management and Budget, Standard Industrial Classification Manual (1987) (SIC Manual).
Copies of the SIC Manual may be obtained from the National Technical Information Service, an agency of the U.S. Department of Commerce.
Here are two examples taken from Reg 1.1031(a)-2 Additional Rules for Exchange of Personal Property [xx] :
You transfer a personal computer used in your business for a printer to be used in your business. The properties exchanged are within the same General Asset Class and are therefore of like class.
Henry transfers a grader to Ron in exchange for a scraper. Both are used in a business. Neither property is within any of the General Asset Classes. Both properties, however, are within the same Product Class and are therefore of like-kind."
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