Southern CAlifornia Exchange Services

IRC Section 1031 uses the term “like-kind” to refer to the nature or character of real property, not its grade or quality.  Therefore, nearly all real property is like-kind to each other.  Meaning, if you are selling a real property interest you can purchase any kind of real property as a replacement property.  For example, one can exchange a condo for a duplex, vacant land for commercial real estate, vacation rental for a medical office building.  As long as the real property for both the sale and purchase are used for trade, business or investment purposes it qualifies for 1031 exchange treatment.

What Qualifies For a 1031 like-kind exchange?

To be tax-free, a like-kind property exchange must follow Internal Revenue Service guidelines closely. If you try to trade something that doesn’t qualify as like-kind, you’ll find yourself paying taxes on the trade and losing out on the benefits of the exchange!

A 1031 Exchange refers to exchanging one type of property for another without incurring a capital gains tax. This includes any type of real estate, whether it be an apartment building, vacant lot, or even a single-family residence. Sometimes you might be able to exchange your vacation home too if you didn't make it your primary residence or use it for longer than 2 weeks out of the year.

What Cannot Be Traded in a like-kind exchange?

Tax codes specifically exclude some property whether or not it has been used in trade, business, or investment. Excluded properties are typically stocks, bonds, notes, securities, and interests in partnerships. Property held primarily for sale (i.e. flipping real estate for quick profit) is also excluded which includes business inventory. For real estate though this means property that was purchased with the intent to sell it--such as a fixer-upper home or vacant land to be developed into a house--is considered excluded. A primary residence usually doesn't qualify for an exchange since it isn't being used in trade, business or investment but there are exceptions where that portion of the primary residence that is being used in a trade or business or for investment may qualify for a 1031 Exchange.

The 1031 exchange process can be complex and costly if not executed properly. So, it is worth your time to find a reputable company, such as SCES, who will take care of everything for you - saving both time and money in the long run. In general, companies like SCES are less expensive than an hourly lawyer because they're scaled up already; you'll feel at ease working with them while they do what they know best.