Introduction to Personal Property 1031 Exchanges

There has been a significant increase in the number of personal property 1031 exchange transactions over the last decade, as corporations and individuals alike learn more about the income tax benefits of this powerful tax-deferral strategy.

The vast majority of tax-deferred like-kind exchanges involve real estate.  Personal property 1031 exchanges only account for an estimated 5% of the total transactional volume.  However, research indicates that the growth in personal property 1031 tax-deferred exchanges will be significant over the next decade.

Advantages of a Personal Property 1031 Exchange

A tax-deferred like-kind exchange of personal property allows a corporate or individual taxpayer to sell his existing personal property (relinquished property) and purchase more profitable and/or productive personal property  (like-kind replacement property) while deferring Federal, and in most cases state, capital gain income tax liabilities.

Overview of Personal Property 1031 Exchanges

1031 exchanges of personal property often include exchanges of corporate and commercial aircraft, aircraft engines and related aircraft and aviation related equipment, shipping vessels, railroad rolling stock, automobile fleets, and trucks and trucking equipment.

Intangible personal property, such as radio and television broadcasting licenses, copyrights, and franchise licenses, qualify for 1031 exchange treatment.  Gold coins, paintings, art work, and other collectibles may also qualify for 1031 exchange treatment.

Sale of Business Operations

Investors can exchange the individual personal property assets of a business operation when selling the assets of the business. Multi-asset 1031 exchanges often include both personal property and real estate assets and are a popular income tax planning strategy used by individuals, investors, small businesses, and large corporations.

Basic Rules and Requirements

Qualified Use Personal Property

The taxpayer must have held the relinquished property for rental, investment or use in his business, and must have the INTENT to HOLD the like-kind replacement property for rental, investment or use in his business.

Property not held for rental, investment or use in the Investor’s business is not considered to be qualified use property and will not qualify for tax-deferred like-kind exchange treatment.

 

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