Income and Assets · Property, real and personal

Like-kind exchange

Verification 2026 Verified
tax year · reviewed 2026-08-19 · Draft for I. Ohu review

Two things about § 1031 are commonly stated as they were before 2018. It is no longer available for anything but real property — equipment, vehicles, artwork and cryptocurrency all left the section when Pub. L. 115-97 rewrote subsection (a)(1). And the familiar “180 days” is not a period the taxpayer is given; it is the longer of two limits, and the other one is the return due date, which for a December closing arrives first.

The rule

The nonrecognition rule, and its new boundary. No gain or loss is recognised on the exchange of real property held for productive use in a trade or business or for investment, if exchanged solely for real property of like kind to be held for productive use in a trade or business or for investment (IRC § 1031(a)(1)). Real property held primarily for sale is excluded (§ 1031(a)(2)).

Identification within 45 days. Property received is treated as not like-kind if it is not identified as property to be received on or before the day 45 days after the taxpayer transfers the relinquished property (IRC § 1031(a)(3)(A)). The identification must be an unambiguous written description — for real property, a legal description, street address or distinguishable name (Treas. Reg. § 1.1031(k)-1(c)(3)).

Receipt by the earlier of two dates. Property received after the earlier of the day 180 days after the transfer, or the due date including extensions of the transferor’s return for the taxable year of the transfer, is not like-kind property (IRC § 1031(a)(3)(B)(i), (ii)). A calendar-year taxpayer who closes in November has fewer than 180 days unless the return is extended.

How many properties may be identified. Three properties without regard to value; or any number whose aggregate fair market value at the end of the identification period does not exceed 200 percent of the aggregate value of the relinquished properties; or, where neither is satisfied, any identified property actually received before the end of the exchange period, provided the taxpayer receives identified property worth at least 95 percent of everything identified (Treas. Reg. § 1.1031(k)-1(c)(4)(i)(A), (B), (c)(4)(ii)(B)).

Boot triggers gain but never loss. Where the exchange would qualify but for the receipt of money or other property, gain is recognised — but not in excess of the sum of the money and the fair market value of the other property (IRC § 1031(b)). Where the same exchange produces a loss, no loss is recognised at all (§ 1031(c)).

Basis carries over and adjusts. The basis of the property acquired is the basis of the property given up, decreased by money received and increased by gain or decreased by loss recognised (IRC § 1031(d)). Where the property received is part like-kind and part other property, the basis is allocated between them, with the other property taking its fair market value. And where another party assumes a liability of the taxpayer, as determined under § 357(d), that assumption is treated as money received.

Related persons have a two-year fuse. Where a taxpayer exchanges property with a related person, gets nonrecognition, and before the date 2 years after the last transfer forming part of the exchange either the related person disposes of the property received or the taxpayer disposes of the property received, the nonrecognition is undone and the gain is taken into account in the year of that later disposition (IRC § 1031(f)(1)).

Domestic and foreign real property are not like kind. Real property located in the United States and real property located outside it are not property of a like kind (IRC § 1031(h)).

One partnership rule. An interest in a partnership with a valid § 761(a) election out of subchapter K is treated as an interest in each of its assets rather than as a partnership interest (IRC § 1031(e)).

Current figures

Item	2026
What qualifies	real property only — no gain or loss on the exchange of real property held for productive use in a trade or business or for investment, solely for real property of like kind to be so held^TY2026
Held for sale	unavailable for real property held primarily for sale — so a dealer's inventory and a developer's lots are outside the section^TY2026
Identification period	45 days after the transfer of the relinquished property, in an unambiguous written description — a legal description, street address or distinguishable name for real property^TY2026
Exchange period	the earlier of 180 days after the transfer of the relinquished property or the due date, including extensions, of the return for the year of that transfer — so a late-year sale needs an extension to get the full 180 days^TY2026
How many may be identified	three properties without regard to value; or any number whose aggregate value at the end of the identification period does not exceed 200 percent of the relinquished property's value; or, failing both, any identified property actually received amounting to at least 95 percent of the value of everything identified^TY2026
Boot	gain is recognised to the extent of money and the fair market value of other property received, but not more than the realised gain — and a loss is never recognised on an exchange that would otherwise qualify^TY2026
Basis	the basis of the property given up, decreased by money received and increased by gain or decreased by loss recognised — with a liability assumed by the other party, as determined under IRC § 357(d), treated as money received^TY2026
Related persons	nonrecognition is undone where, within 2 years of the last transfer in the exchange, the related person disposes of the property received or the taxpayer disposes of the property they received — the gain being taken into account in the year of that later disposition^TY2026
Foreign real property	real property in the United States and real property outside it are not of like kind^TY2026
Excluded partnerships	an interest in a partnership with a valid IRC § 761(a) election out of subchapter K is treated as an interest in each of its assets rather than as a partnership interest^TY2026
Recapture on a § 1031 disposition	neither section applies to a disposition by gift or, except as IRC § 691 provides, to a transfer at death; on a § 332, 351, 361, 721 or 731 transfer or a § 1031 or § 1033 disposition, recapture is capped by the gain actually recognised^TY2026

How it works in practice

Start with the calendar, because it is the part that cannot be fixed afterwards. Day 0 is the transfer of the relinquished property. Day 45 is the identification deadline. The exchange deadline is the earlier of day 180 and the return due date — so for a transfer after roughly mid-October, a calendar-year individual must extend the return simply to preserve the full period. Extending for that reason alone is routine and is the single most useful piece of advice on this topic.

Then work the boot. Cash received is boot. Net debt relief is boot, because § 1031(d) treats an assumed liability as money received. Recognised gain is the lesser of the realised gain and the boot, and the new basis follows from § 1031(d) rather than from the price of the replacement property. A taxpayer trading down in debt while paying no cash can still have a taxable event.

Do not forget recapture. Section 1245(b)(4) and § 1250(d)(4) cap recapture at the gain actually recognised on a § 1031 disposition, so boot in an exchange of depreciable real property is ordinary to the extent of the recapture potential before it is anything else.

And check the parties. An exchange with a related person is not prohibited, but it is conditional for two years, and the condition is broken by either side disposing of what they received.

Scenario 1 — the November closing that ran out of days

Hafsa transfers a rental building on 12 November 2026 and identifies a replacement on 20 December 2026, well within 45 days. Her intermediary expects to close on the replacement on 20 April 2027 — day 159.

Day 180 would be 11 May 2027, but IRC § 1031(a)(3)(B) takes the earlier of that and the due date of her 2026 return. Unextended, that due date is in mid-April, before the closing. Property received after it is not like-kind property and the whole exchange fails. Filing Form 4868 to extend her 2026 return moves the cutoff past day 180 and saves the exchange — an extension filed for no other reason.

Scenario 2 — no cash, and a taxable event anyway

Idris exchanges an apartment building with a basis of 300,000 dollars, a value of 900,000 dollars and a 500,000-dollar mortgage, for a building worth 400,000 dollars with no debt. He receives no cash.

The other party’s assumption of his 500,000-dollar mortgage is treated as money received under the closing sentence of IRC § 1031(d). His realised gain is 600,000 dollars; his boot is 500,000 dollars; § 1031(b) recognises gain equal to the lesser, so 500,000 dollars is taxable. His basis in the new building is 300,000 less 500,000 of money received plus 500,000 of gain recognised, or 300,000 dollars. He paid tax on half a million dollars in a transaction in which no money changed hands.

Scenario 3 — the swap with a sibling, unwound

Jae exchanges investment land with his sister in March 2026, each deferring gain. In September 2027 she sells the land she received to an unrelated buyer.

The disposition falls within the 2-year period in IRC § 1031(f)(1)(C), so the nonrecognition is undone. Jae’s deferred gain from the 2026 exchange is taken into account in 2027, the year of his sister’s disposition — not in 2026, and not by amending. His own continued holding of the land he received does not protect him: the paragraph is triggered by either party disposing.

Personal property no longer qualifies. Since Pub. L. 115-97 § 13303(a), IRC § 1031(a)(1) reads on real property only. Vehicles, equipment, collectibles and digital assets are all outside it.

180 days is a maximum, not an entitlement. The return due date can arrive first, and an extension is the fix.

Debt relief is boot. The closing sentence of § 1031(d) treats an assumed liability as money received, so an exchange with no cash can still be taxable.

Losses are never recognised. Section 1031(c) denies a loss on an exchange that would otherwise qualify — which is why a property standing at a loss should usually be sold rather than exchanged.

How this has changed

The section was cut down to real property in 2017 and the change is total. Pub. L. 115-97 § 13303(a) replaced the old “property held for productive use in a trade or business or for investment” with “real property”, and § 13303(b) made conforming changes throughout. Every pre-2018 description of § 1031 — including the standard examples about trading in business vehicles and exchanging equipment — describes a provision that no longer exists. The heading of the section was changed too, which is a useful tell: it now reads “Exchange of real property held for productive use or investment”.

Subsection (h) was simplified along with it. It once distinguished foreign personal property by predominant use; it now says only that domestic and foreign real property are not of like kind.

The deferred exchange machinery predates all of this and survived unchanged. The 45-day and 180-day periods entered the statute in 1984 and the qualified intermediary regulations in 1991. Treas. Reg. § 1.1031(k)-1 is therefore old but current, and its three-property, 200-percent and 95-percent rules are still the operative identification limits.

The related-person rule has a wider reach than its heading suggests. Section 1031(f)(1) is triggered by a disposition by either party within two years, and the resulting gain lands in the year of that disposition rather than the year of the exchange. A taxpayer who has done everything right can be undone by a relative’s unrelated decision two years later.

Exam focus

Expect a date question built around a fourth-quarter closing, where the answer turns on the return due date rather than on 180 days.

Expect boot as debt relief rather than cash, and remember the § 1031(d) sentence that makes an assumed liability money received.

Expect a personal property exchange offered as qualifying. Since 2018 it is not.

Expect the related-person two-year rule, triggered by either side’s disposition, with the gain falling in the later year.

Check yourself

1. A taxpayer transfers relinquished property on 1 December 2026 and expects to close on the replacement on 15 May 2027. What must be done?

Answer: Extend the 2026 return. Under IRC § 1031(a)(3)(B) the exchange period ends on the earlier of 180 days — which would be late May — and the due date including extensions of the 2026 return, which unextended falls before the closing.

2. Property with a basis of 100,000 dollars and a value of 250,000 dollars is exchanged for like-kind property worth 220,000 dollars plus 30,000 dollars of cash. How much gain is recognised, and what is the new basis?

Answer: 30,000 dollars, the lesser of the realised gain and the boot, under IRC § 1031(b). Basis is 100,000 less 30,000 of money received plus 30,000 of gain recognised, or 100,000 dollars, under § 1031(d).

3. May a taxpayer exchange a business truck for another business truck under this section?

Answer: No. IRC § 1031(a)(1) has applied only to real property since Pub. L. 115-97 § 13303(a); personal property is outside the section entirely.

4. How many replacement properties may be identified?

Answer: Three without regard to value, or any number whose aggregate value at the end of the identification period is not more than 200 percent of the relinquished property’s value, under Treas. Reg. § 1.1031(k)-1(c)(4)(i) — with a 95-percent fallback in (c)(4)(ii)(B) where neither is met.

5. An exchange between siblings is followed by one of them selling eighteen months later. What is the consequence to the other?

Answer: The nonrecognition is undone. IRC § 1031(f)(1) applies where either party disposes of the property received within 2 years of the last transfer in the exchange, and the deferred gain is taken into account in the year of that disposition.

Change log

2026-08-19Initial draft. Sets out IRC § 1031(a)(1) as confined to real property by Pub. L. 115-97 § 13303(a), the § 1031(a)(3) identification and exchange periods with the return due date as an alternative cutoff, the Treas. Reg. § 1.1031(k)-1(c)(4) identification limits, the § 1031(b), (c) treatment of boot and the § 1031(d) basis rule including assumed liabilities, and the § 1031(f) related person and § 1031(h) foreign property rules.