Be Wary of Outdated Information About Section 1031

When it comes to dealing with the Internal Revenue Service (IRS), you cannot afford to make mistakes. This is especially true when you are claiming a substantial reduction in your tax liability under Section 1031. While Section 1031 allows taxpayers to indefinitely defer capital gains tax triggered by a like-kind exchange, many people use Section 1031 improperly, and, as a result, the IRS often closely scrutinizes taxpayers’ claims for deferral eligibility. This is one reason—among many—why it is important to work closely with an experienced 1031 exchange facilitator throughout the process.

This is also a reason to be wary of outdated information about Section 1031. Unfortunately, there is a lot of outdated information online. This includes outdated information available from the IRS. For example, if you search for “1031 exchange” on Google, one of the first non-sponsored search results is this Fact Sheet that the IRS published in 2008.

A Lot Has Changed Since the IRS Published Its Section 1031 Fact Sheet in 2008

While some information in the IRS’ 2008 Fact Sheet is still accurate, other information in the Fact Sheet is not. For example, the Fact Sheet states:

“Real property and personal property can both qualify as exchange properties under Section 1031; but real property can never be like-kind to personal property. In personal property exchanges, the rules pertaining to what qualifies as like-kind are more restrictive than the rules pertaining to real property.  As an example, cars are not like-kind to trucks.”

This is not accurate—today, it is not possible to conduct a 1031 exchange involving personal property. The Tax Cuts and Jobs Act of 2017 eliminated 1031 exchange eligibility for personal property effective January 1, 2018. As the IRS makes clear elsewhere on its website, “Section 1031 now applies only to exchanges of real property and not to exchanges of personal or intangible property.”

Not only is it not possible to conduct a 1031 exchange with personal property, but if a portion of the proceeds in a 1031 exchange involving real estate is attributable to personal property (i.e., furniture or equipment), this portion generally is not eligible for tax deferral. Likewise, if the exchange involves purchasing real estate that contains furniture, equipment, or other personal property, this can also render a portion of the transaction ineligible under Section 1031.

Where Can You Find Up-To-Date Information About Section 1031?

With this in mind, where can you find up-to-date information about Section 1031?

While you always need to be careful, the majority of the information you will find about Section 1031 on the IRS’s website is up to date. It has now been several years since the last revisions to Section 1031, and, generally speaking, anything published by the IRS after the release of its most recent Final Regulations in 2020 should be current.

But, there are no guarantees, and the IRS makes clear that taxpayers cannot rely on “unofficial” guidance published on its website. As a result, when making important tax-related decisions—including decisions about whether to claim tax deferral under Section 1031—taxpayers need to ensure that they are relying on the advice of a qualified tax professional. When it comes to conducting a like-kind exchange, this means working with an experienced 1031 exchange facilitator who can assist with assessing, establishing, and documenting their eligibility under Section 1031.

At 1031 National Services, we provide all of these forms of assistance to our clients. When you choose to work with us:

• We will determine if your proposed transaction qualifies as a like-kind exchange under Section 1031 based on the properties, timing, and other factors involved.
• If your proposed transaction does not qualify as a like-kind exchange, we will determine if there are steps you can take to modify the transaction so that it falls under Section 1031.
• If you decide to pursue a like-kind exchange, we will provide all of the support services and documentation necessary to secure indefinite tax deferral.

Schedule a Free Consultation with an Experienced 1031 Exchange Facilitator at 1031 National Services

Are you thinking about conducting a like-kind exchange and claiming indefinite tax deferral under Section 1031? Or, do you have questions about the eligibility criteria and tax benefits under Section 1031? If so, we can help, and we invite you to get in touch. To schedule a free consultation with an experienced 1031 exchange facilitator at 1031 National Services, give us a call at 888-872-1031 or tell us how we can help online today.