1031 Exchange: General Requirements

There are three general requirements for nonrecognition treatment with respect to the properties involved in 1031 like-kind exchange.  These include:

1. The property transferred by the taxpayer must be held by the taxpayer for productive use in a trade or business or for investment.
2. The property received by the taxpayer in the exchange must be property which is to be held for productive use in a trade or business or for investment.
3. The property transferred and the property exchanged must be of like kind. Property held for productive use in a trade or business may be exchanged for property to be held for investment, and property held for investment may be exchanged for property to be held for productive use in a trade or business.

However, even if the above requirements are met, nonrecognition is not permitted on exchanges of the following types of property:

1. Stock in trade or other property held primarily for Sale;
2. Stocks, bonds, or notes;
3. Other securities or evidences of indebtedness or interest;
4. Interests in a partnership;
5. Certificates of trust or beneficial interests; and
6. Choses in action.

You may also want to read my other articles on 1031 Like-Kind Exchanges and the Near-Simultaneous Requirement.