Page 346 - Small Business IRS Training Guides

Example #6: Amanda transfers real property held for investment to a qualified intermediary in a forward exchange
on June 3, 2018. She will have until July 18, 2018 (45 days after June 3, 2018), to provide the QI with an

identification letter listing the properties she wishes to acquire. If the identification letter lists properties A, B & C
and Amanda later receives properties A, B & D, Property D will not be considered like-kind under IRC § 1031(a)(3)

since it was not identified within the 45-day period. Additionally, if an identified property is received after November
30, 2018 (180 days after June 3, 2018), that property will also be treated as not of like-kind to Amanda’s

relinquished property and thus not qualifying for replacement property.

4. Ensure the relinquished property and the replacement property are of a like-kind and not either held primarily for

sale or held for personal use.

Example #7: Karen is a dealer in real property. John owns real property that he uses in his trade or business.
Karen and John exchange one of Karen’s listed properties for John’s property plus $100,000 cash. John intends to

use Karen’s property in his trade or business. Karen cannot use IRC § 1031 to defer gain on the exchange of her
property because she held her relinquished property primarily for sale. Karen’s amount of gain realized and

recognized equals the FMV of John’s real property plus the $100,000 cash she received less her adjusted basis of
the real property she exchanged.

However, John’s exchange will qualify for IRC § 1031 treatment since his relinquished and replacement properties

are held for productive use in a trade or business. John basis in his replacement property is the adjusted basis in
the old property plus the $100,000 cash he paid for Karen’s property.

5. Verify that the qualified intermediary (QI) meets the requirements under Treas. Reg. § 1.1031(k)-1(g)(4)(iii). The QI

cannot be the taxpayer’s agent. Note: For simultaneous transfers, a QI is permitted to be an agent of the taxpayer.
Treas. Reg. § 1.1031(b)-2(a).

6. Determine if the exchange involved receipt of cash by the taxpayer. This is commonly referred to as “boot.”
Additionally, any property the taxpayer receives that is not of like-kind to the relinquished property is boot. A

taxpayer’s receipt of boot will trigger the recognition of gain to the extent of the lesser of (i) the realized gain, or
(ii) the cash received plus the fair market value of the non-like-kind property the taxpayer receives in the exchange,

but no losses are recognized. IRC § 1031(b) & (c).

73233-102 13303-8 Tax Cuts and Jobs Act