Page 343 - Small Business IRS Training Guides

Real property located within the United States is not considered like-kind to real property located outside the United

States. IRC § 1031(h). Additionally, leaseholds of real property having at least 30 years to run are generally like-kind to

fee simple interests in real property. Treas. Reg. § 1.1031(a)-1(c).

It is important to note that, when determining whether real property is of like-kind to other real property, all facts and

circumstances are considered including state law and federal law classifications.

Example #5: In 2018, Jane decides to exchange a parcel of real property she owns and holds for investment purposes
located in Toronto, Canada for another parcel of real property located in Burlington, Vermont. The property to be received

will also be held for investment purposes. Regardless of whether the property would otherwise qualify for like-kind
exchange treatment, IRC § 1031(h) precludes property located within the United States from being like-kind to property

located outside the United States. Jane would be required to recognize any realized gain or loss on the exchange.

Audit Considerations to an IRC § 1031 exchange

The following is non-exclusive list of audit considerations when determining whether IRC § 1031 applies to an exchange:

1. Review the Form 8824 for completeness. Request supporting calculations substantiating amounts on the form.

2. Consider the type of exchange you have. The most common types of exchanges are as follows:

a. A simultaneous, two-party exchange,

b. A deferred forward exchange with a qualified intermediary, and

c. A reverse exchange with an accommodating titleholder.

A simultaneous, two-party exchange occurs when a taxpayer transfers property (relinquished property) to another

party and, at the same time, receives property (replacement property) from the other party.

73233-102 13303-6 Tax Cuts and Jobs Act