26 USC § 1031 - Exchange of property held for productive use or investment | Title 26 - I...

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Part III › § 1031

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26 USC § 1031 - Exchange of property held for productive use or investment
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Current through Pub. L. 113-31. (See Public Laws for the current Congress.) ( a ) N o n r e c o g n i t i o n of g a i n o r l o s s f r o m e x c h a n g e s s o l e l y i n k i n d (1 ) I n ge nera l use in a trade or business or for investment if such property is exchanged solely for or for investment. ( 2 ) E x ce p t i o n This subsection shall not apply to any exchange of— ( A) stock in trade or other property held primarily for sale, ( B) stocks, bonds, or notes, ( C) other securities or evidences of indebtedness or interest, ( D) interests in a partnership, ( E) certificates of trust or beneficial interests, or ( F) choses in action. election under section 761 (a) to be excluded from the application of all of subchapter K interest in a partnership. shall be treated as an interest in each of the assets of such partnership and not as an For purposes of this section, an interest in a partnership which has in effect a valid No gain or loss shall be recognized on the exchange of property held for productive property of like kind which is to be held either for productive use in a trade or business

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m o r e t h a n 1 8 0 d a y s a f t e r t r a n s f e r o f e x ch a n g e d p r o pe r t y as property which is not like-kind property if—

( 3 ) R e qu i r e m e n t t h a t pr op e r t y b e i d e n t i f i e d a n d t h a t e x c h a n g e b e c o m p l e t e d n o t

For purposes of this subsection, any property received by the taxpayer shall be treated ( A) such property is not identified as property to be received in the exchange on or property relinquished in the exchange, or

before the day which is 45 days after the date on which the taxpayer transfers the ( B) such property is received after the earlier of— (i) the day which is 180 days after the date on which the taxpayer transfers the property relinquished in the exchange, or

relinquished property occurs.

the tax imposed by this chapter for the taxable year in which the transfer of the

(ii) the due date (determined with regard to extension) for the transferor’s return of

( b ) G a i n fr o m e xc h a n g e s n o t s o l e l y i n k i n d If an exchange would be within the provisions of subsection (a), ofsection 1035(a), of section 1036(a), or of section 1037(a), if it were not for the fact that the property received F I N D A L AW Y E R

http://www.law.cornell.edu/uscode/text/26/1031

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26 USC § 1031 - Exchange of property held for productive use or investment | Title 26 - I... Page 2 of 4

money and the fair market value of such other property. ( c ) L o s s f r o m e x c h a n g e s n o t s o l e l y in k i n d

to the recipient shall be recognized, but in an amount not in excess of the sum of such

in exchange consists not only of property permitted by such provisions to be received without the recognition of gain, but also of other property or money, then the gain, if any,

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If an exchange would be within the provisions of subsection (a), ofsection 1035(a), of

section 1036(a), or of section 1037(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain or loss, but also of other property or money, then no loss

from the exchange shall be recognized. (d ) Ba s i s

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If property was acquired on an exchange described in this section, section 1035 (a), section 1036(a), or section 1037 (a), then the basis shall be the same as that of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that

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(a), to be received without the recognition of gain or loss, and in part of other property, money) received, and for the purpose of the allocation there shall be assigned to such

was recognized on such exchange. If the property so acquired consisted in part of the type of property permitted by this section, section 1035 (a), section 1036(a), or section 1037 the basis provided in this subsection shall be allocated between the properties (other than

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other property an amount equivalent to its fair market value at the date of the exchange. For purposes of this section, section 1035 (a), andsection 1036 (a), where as part of the
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consideration to the taxpayer another party to the exchange assumed (as determined

under section 357 (d)) a liability of the taxpayer, such assumption shall be considered as money received by the taxpayer on the exchange.

( e ) E xc h a n g e s o f l i v e s t o c k of di f f e r e n t s e x e s For purposes of this section, livestock of different sexes are not property of a like kind. ( f ) S p e c ia l r u l e s f o r e x c h a n g e s b e t w e e n r e l a t e d p e r s o n s (1 ) I n ge nera l If— ( A) a taxpayer exchanges property with a related person, ( B) there is nonrecognition of gain or loss to the taxpayer under this section with subsection), and exchange— respect to the exchange of such property (determined without regard to this

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( C) before the date 2 years after the date of the last transfer which was part of such (i) the related person disposes of such property, or person which was of like kind to the property transferred by the taxpayer, (ii) the taxpayer disposes of the property received in the exchange from the related

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respect to such exchange; except that any gain or loss recognized by the taxpayer by reason of this subsection shall be taken into account as of the date on which the disposition referred to in subparagraph (C) occurs. ( 2 ) C e r t a i n d i s p o s i t i o n s n ot t a k e n i n t o a c c o u n t disposition— For purposes of paragraph (1)(C), there shall not be taken into account any

there shall be no nonrecognition of gain or loss under this section to the taxpayer with

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( A) after the earlier of the death of the taxpayer or the death of the related person, ( B) in a compulsory or involuntary conversion (within the meaning of section 1033) if the exchange occurred before the threat or imminence of such conversion, or ( C) with respect to which it is established to the satisfaction of the Secretary that

avoidance of Federal income tax.

neither the exchange nor such disposition had as one of its principal purposes the

http://www.law.cornell.edu/uscode/text/26/1031

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( 3 ) R e l a t ed p er so n relationship to the taxpayer described in section 267 (b) or 707 (b)(1). ( 4 ) T r e a t m e n t of c e r t a i n t r a n s a c t i o n s This section shall not apply to any exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection. For purposes of this subsection, the term “related person” means any person bearing a

( g ) S pe ci a l r u l e w h e r e s u b s t a n t i a l d i m i n u t i o n o f r i s k (1 ) I n ge nera l forth in subsection (f)(1)(C) with respect to such property shall be suspended during ( 2 ) P r o p e r t y t o w h i c h s u b s e c t i o n a p p li e s This paragraph shall apply to any property for any period during which the holder’s risk of loss with respect to the property is substantially diminished by— ( A) the holding of a put with respect to such property, ( B) the holding by another person of a right to acquire such property, or ( C) a short sale or any other transaction. ( h ) S p e c i a l r u l e s f or f o r e i g n r e a l a n d pe r s o n a l p r o pe r t y For purposes of this section— (1 ) R e al p ro p erty States are not property of a like kind. ( 2 ) P e rso n a l p ro p ert y ( A ) In g e n e r a l used predominantly outside the United States are not property of a like kind. ( B) P red o mi na n t us e Except as provided in subparagraphs (C) and (D), the predominant use of any property shall be determined based on— (i) in the case of the property relinquished in the exchange, the 2-year period ending on the date of such relinquishment, and beginning on the date of such acquisition. ( C ) P r o p e r t y h e l d fo r l e s s t h a n 2 y e a r s Except in the case of an exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection— (i) only the periods the property was held by the person relinquishing the property (or any related person) shall be taken into account under subparagraph (B)(i), and (ii) only the periods the property was held by the person acquiring the property (or (ii) in the case of the property acquired in the exchange, the 2-year period Personal property used predominantly within the United States and personal property Real property located in the United States and real property located outside the United If paragraph (2) applies to any property for any period, the running of the period set

such period.

any related person) shall be taken into account under subparagraph (B)(ii). ( D ) S p e c i a l r u l e fo r c e r t a i n pr o pe r t y

Property described in any subparagraph of section 168 (g)(4) shall be treated as used predominantly in the United States.

( i ) S p e c i a l r u l e s fo r m u t u a l d i t c h , r e s e r v o i r , o r i r r i g a t i o n c o m p a n y s t o c k ditch, reservoir, or irrigation company if at the time of the exchange— For purposes of subsection (a)(2)(B), the term “stocks” shall not include shares in a mutual

http://www.law.cornell.edu/uscode/text/26/1031

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is collected from its members for the purpose of meeting losses and expenses), and

(1) the mutual ditch, reservoir, or irrigation company is an organization described in section 501 (c)(12)(A) (determined without regard to the percentage of its income that (2) the shares in such company have been recognized by the highest court of the State

in which such company was organized or by applicable State statute as constituting or representing real property or an interest in real property.

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http://www.law.cornell.edu/uscode/text/26/1031

8/28/2013