Wednesday, November 16, 2005

1031 Like Kind Exchange 

The 1031 Exchange: An Intriguing Perspective and Examples

The other day, a new investor in real properties and I were talking about the pros and cons of the 1031 Like Kind Exchange. Investors sometimes mistakenly believe they must acquire property just like their relinquished property,and this was the case with my client. She was surprised to learn a wide variety of properties can be considered “like-kind”. So, contrary to what had concerned her, we DO have a latitude and an intriguing perspective from which to make choices under the 1031 Exchange plan.

Think of it this way: “Like Kind” does NOT refer to the nature, character or type of property. Instead, it is all about the intended use of the property. Provided the property is initially acquired and held for either business or investment purposes, it can qualify as a suitable replacement property under IRC Section 1031. Also, real properties generally are of a “like kind”, regardless of whether the properties are improved or unimproved.

1031 Exchange Examples:

* A Professional office in Manhattan for a Mountain cabin and land that you will lease

* A Condo in California for Unimproved Land with a Waterfall in the Asheville area

* A Single family rental in Chicago for multi family rental in West Asheville

* Non income providing raw land in Florida for income producing rental property in the beautiful Appalachians of Western North Carolina

* An apartment building in downtown Detroit for an office building in Up-and-coming Mars Hill, North Carolina

REMEMBER: The Section 1031 Code was amended in 1989 rendering property outside the United States NON “Like Kind”.

REMEMBER: Investors do not have to exchange for exactly the same type of property.

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