Like Kind Exchange Clauses: Contract for Real Property are contractual clauses which allow for the exchange of real property between two parties without any immediate tax liability. This type of exchange is commonly referred to as a 1031 Exchange, in reference to the section of the Internal Revenue Code that governs it. Like Kind Exchange Clauses: Contract for Real Property can be found in sales contracts, leases, and other agreements that involve the transfer of real property. The clause typically states that the parties agree to exchange the real property in a like-kind exchange, meaning that the properties must be of the same type, such as land, office space, or multifamily dwellings. The clause also typically states that any taxes associated with the exchange must be the responsibility of the parties, and that the exchange must be in compliance with all applicable federal, state, and local laws. There are two main types of Like Kind Exchange Clauses: Contract for Real Property: Simple Exchange and Reverse Exchange. A Simple Exchange is the most common type of 1031 exchange and involves the exchange of real property between two parties. A Reverse Exchange is a more complex form of 1031 exchange that involves the use of a qualified intermediary to facilitate the exchange.
Like Kind Exchange Clauses: Contract for Real Property
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Any real estate, except for one's own personal residence, is considered like-kind to any other real estate. Generally, any real estate property held for productive use in the trade or business or for investment qualifies for a like-kind exchange.
What Properties Are Not Considered Like-Kind? A Primary or Secondary Residence: An Exchanger's primary or secondary residence is not considered like kind and does not qualify for a 1031 exchange.
Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like-kind exchange treatment. Both properties must be similar enough to qualify as "like-kind." Like-kind property is property of the same nature, character or class.
Securities, stocks, bonds, partnership interests, and other financial assets are excluded from the definition of like-kind property.
The Regulations allow identifying multiple properties. A Taxpayer may identify as many as 3 alternate properties of any value. If more than 3 properties are identified, the value of the 3 cannot exceed 200% of the value of the Relinquished Property unless 95% of the properties identified are acquired.
Under the Tax Cuts and Jobs Act, Section 1031 now applies only to exchanges of real property and not to exchanges of personal or intangible property. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange.
Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like-kind exchange treatment. Both properties must be similar enough to qualify as "like-kind." Like-kind property is property of the same nature, character or class.
Like-kind exchanges -- when you exchange real property used for business or held as an investment solely for other business or investment property that is the same type or ?like-kind? -- have long been permitted under the Internal Revenue Code.
