CES Like-Kind Property Requirements 1 — Questions and Answers
Question 1: Under IRC Section 1031, which of the following best defines 'like-kind' property in a US exchange?
- Property of the same nature or character, regardless of grade or quality (Correct answer)
- Property that is identical in use and location
- Property with the same fair market value
- Property owned for at least five years
Correct answer: Property of the same nature or character, regardless of grade or quality
Like-kind refers to the nature or character of the property, not its grade, quality, or specific use.
Question 2: Which of the following is NOT eligible as like-kind property in a 1031 exchange?
- A commercial office building
- A vacant lot held for investment
- A primary residence (Correct answer)
- Rental residential property
Correct answer: A primary residence
A primary residence is not held for business or investment purposes and does not qualify for a 1031 exchange.
Question 3: Can US real property be exchanged for foreign real property in a 1031 exchange?
- Yes, if both properties are investment properties
- No, US real property and foreign real property are not like-kind (Correct answer)
- Yes, as long as the exchange value is equal
- No, only commercial properties qualify
Correct answer: No, US real property and foreign real property are not like-kind
Since the Tax Cuts and Jobs Act of 2017, US real property and foreign real property are not considered like-kind.
Question 4: Which statement about personal property and 1031 exchanges after the Tax Cuts and Jobs Act of 2017 is correct?
- Personal property still qualifies for 1031 exchanges
- Personal property was eliminated from 1031 exchange eligibility (Correct answer)
- Only vehicles qualify as personal property in 1031 exchanges
- Personal property exchanges require IRS pre-approval
Correct answer: Personal property was eliminated from 1031 exchange eligibility
The TCJA eliminated personal property from 1031 exchange eligibility, limiting it to real property only.
Question 5: A taxpayer wants to exchange a ranch used for business purposes for an apartment complex held for investment. Is this a valid like-kind exchange?
- No, because the properties have different uses
- Yes, because both are US real property held for business or investment (Correct answer)
- No, because ranch land and apartments are different property types
- Yes, but only if both properties have the same square footage
Correct answer: Yes, because both are US real property held for business or investment
Real property exchanged for real property qualifies as like-kind regardless of the specific use, as long as both are held for business or investment.
Question 6: Which of the following property types qualifies as like-kind in a 1031 exchange?
- Stock in a real estate company
- A leasehold interest of 30 or more years (Correct answer)
- A primary residence upgraded for resale
- Inventory held by a dealer
Correct answer: A leasehold interest of 30 or more years
A leasehold interest with 30 or more years remaining (including renewal options) is considered like-kind to a fee simple interest.
CES Like-Kind Property Requirements 1
Under IRC Section 1031, which of the following best defines 'like-kind' property in a US exchange?