Anybody know anything about a 1031 exchange? Can you trade shares in a corporation for agricultural land with little or no taxes? Just wondering if anyone has any info. I've been looking into it just thought I would ask.
1031 exchange.
- Thread starter ZMT
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I believe so. I was dove hunting with my boss last weekend and they were talking about some other O&G guys who sold big fields and were buying ranches under the 1031 exchange.
cow pollinater
Well-known member
My understanding is that a 1031 is only available for real estate transactions and the upgrade has to be a property of similar type to the one that is sold.
A 1031 has to trade into a property of an equal or higher price. It also has to be used for business or investment, not a residence unless you can prove that you'll rent it out for I believe 2 years. Like kind simply means real estate for real estate. I have done one on a multi-unit rental property for a piece of farm ground. Stocks and bonds are not like kind assets that can be exchanged. I know from personal experience that mineral rights can be though. Point being perhaps some assets that might comprise the shares of a ranch that is an S Corp for example could be. I don't know that though.
I think the problem would be if you are one of the members of the S Corp, taking the property out of the corporation would be treated as a dividend and taxed accordingly. Within the S corp, just buying out other members, I would think you could use an exchange to purchase the "shares" that is the property in question. Again, other than buying a ranch that was an S Corp once, I know little about them so I could be way off.
Jogeephus
Well-known member
One thing you should keep in mind is you are not avoiding taxes only delaying them since you're basis will be the same. So you need to consider the consequences of shifting the tax burden into the future and whether the capital gains rate will be more in the future or less. Sometimes its better to go ahead and pay the tax now and have a stepped up basis in the property for the future.
Jogeephus":2z0mw7ia said:
That is a really good point. I've heard the same debate about IRAs. It would depend on when or if you ever plan on "cashing out".
You have to sit down with good tax person and maybe a good estate lawyer to talk it thru. Let the know what you are trying to accomplish.
cris1031
New member
There are many nuances to 1031s, but here's a summary:
- property must be held for trade, business or investment. Personal use property (2nd homes), principal residences and property held for sale (dealers, flippers) does not normally qualify
- real property is only like-kind to real property; and personal property like-kind to personal property. For animals, the same sex must be involved. I've handled cows to cows, stallions to stallions
Shares in a corporation to real estate would not qualify for 1031 deferral, nor would the sale of a partnership interest. That is not to say that corporations and partnerships cannot do exchanges - they certainly can.
Most exchanges today involve selling to one party and acquiring from a different party - a delayed exchange. "Swaps" are still allowed, but very difficult to find.
Here are other examples of allowed exchanges:
1) Conservation easement exchanged for commercial/rental property;
2) Bare land exchanged for 8-plex or other rental property;
3) Agricultural land for a 50% interest in a commercial office building;
4) Bare land for a ski condo that is placed in a rental pool;
5) Farm equipment for other farm equipment;
6) Crop dusting airplane for a newer airplane.
Personal property has a bit tougher like-kind definition as compared to real property, but all of the above are used quite often. I hope this helps!
- property must be held for trade, business or investment. Personal use property (2nd homes), principal residences and property held for sale (dealers, flippers) does not normally qualify
- real property is only like-kind to real property; and personal property like-kind to personal property. For animals, the same sex must be involved. I've handled cows to cows, stallions to stallions
Shares in a corporation to real estate would not qualify for 1031 deferral, nor would the sale of a partnership interest. That is not to say that corporations and partnerships cannot do exchanges - they certainly can.
Most exchanges today involve selling to one party and acquiring from a different party - a delayed exchange. "Swaps" are still allowed, but very difficult to find.
Here are other examples of allowed exchanges:
1) Conservation easement exchanged for commercial/rental property;
2) Bare land exchanged for 8-plex or other rental property;
3) Agricultural land for a 50% interest in a commercial office building;
4) Bare land for a ski condo that is placed in a rental pool;
5) Farm equipment for other farm equipment;
6) Crop dusting airplane for a newer airplane.
Personal property has a bit tougher like-kind definition as compared to real property, but all of the above are used quite often. I hope this helps!
cris1031
New member
Corporations are able to do exchanges just like "humans". If a corporation owns real property that fits the definition as being used "in a trade/business or for investment", they can sell that property and acquire new replacement property also used "in a trade/business or for investment". Many ranchers/farmers are doing just that with their family corporations: Selling ag-land and acquiring income producing multiplexes, commercial buildings, or fractional ownerships with others in larger institutional grade commercial properties.
The Property and Special Taxes Department administers three major property tax programs:
the State-Assessed Property program;
the Private Railroad Car Tax program;
and the Timber Yield Tax program.
1031 exchange how many days
the State-Assessed Property program;
the Private Railroad Car Tax program;
and the Timber Yield Tax program.
1031 exchange how many days
