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LEARNING RESOURCES

Real Estate Taxation — Tax Staff Essentials
Additionally, for purposes of the like-kind test, Sec.
1031(h) states that real property used in the United Learn more about passive activity limitations,
like-kind exchanges, involuntary conversions, and
States and real property used outside of the United
Sec. 1237.
States are not like-kind properties. Therefore, one
could not exchange an investment property in the tinyurl.com/375y66zh
United States for an investment property in France CPE SELF-STUDY

or Ireland and accomplish the goal of gain deferral.
Finally, if money or other nonqualified property
is included in a like-kind exchange, the money or
other property is not considered like kind and may
trigger gain recognition (Regs. Sec. 1.1031(d)-1(e)).
One other important point about the meaning
of “like kind” is that partnership interests cannot Taxation of Property Transactions — Tax Staff
Essentials
be exchanged tax-free under like-kind exchange
rules (Regs. Sec. 1.1031(a)-1(a)(1)), even if the Explore property-related timing issues and planning
underlying assets of the partnership include land. opportunities that can lead to significant tax savings.
Consequently, a partnership interest owning land tinyurl.com/jfsr7xx3
cannot be replacement property for land relin-
CPE SELF-STUDY
quished. Additionally, there must be a continuation
of ownership such that both the replacement
property and the relinquished property are held by
the same taxpayer.
For more information or to make a purchase, go to aicpa.org/cpe-learning or
call the Institute at 888-777-7077.
Issue No. 2: Time constraints
Two critical deadlines must be observed to prevent
a taxable exchange of like-kind property. First,
the taxpayer, or a qualified intermediary (QI),
must identify replacement property or properties
in writing within 45 days from the date of the a taxable event, the taxpayer should enter into an
transfer of the relinquished property. Second, exchange agreement with a QI. A QI is an objective
the taxpayer must acquire replacement property third party who will sell the taxpayer’s relinquished
pursuant to a Sec. 1031 exchange agreement within property, hold the proceeds, then purchase the tax-
180 days from the date of the original transfer of payer’s acquired property and transfer the property to
relinquished property or the due date (determined the taxpayer. The QI cannot be a disqualified person
with regard to extension) for the taxpayer’s federal (i.e., (1) a person who is the agent of the taxpayer at
income tax return for the year in which the transfer the time of the transaction; (2) a person who bears
of the relinquished property occurs (Regs. Sec. with the taxpayer a relationship described in either
1.1031(k)-1(b)(2)). Sec. 267(b) or Sec. 707(b) (substituting in each
It is important to note that if a taxpayer initiates section “10 percent” for “50 percent” each place it
a Sec. 1031 exchange near the end of the year and appears); or (3) a person who bears a relationship
the exchange has not been completed by the due described in either Sec. 267(b) or Sec. 707(b) (again
date of the taxpayer’s return, presumably April substituting in each section “10 percent” for “50
15, then the taxpayer must file for an extension percent” each place it appears) with an agent of the
of his or her personal return to preserve the taxpayer).
180-day exchange period. Otherwise, the taxpayer’s This is critical information for the tax accountant
180-day period will end on the due date of the tax or financial adviser because, if you have acted as the
return, thereby triggering gain recognition on the taxpayer’s agent (for these purposes, a person who
incomplete Sec. 1031 exchange. has acted as the taxpayer’s employee, attorney, ac-
countant, investment banker or broker, or real estate
Issue No. 3: Receipt of proceeds agent or broker) within the two years prior to the
To ensure that none of the proceeds from the re- Sec. 1031 exchange transaction, you are a disqualified
linquished property are either actually or construc- person who cannot serve as the taxpayer’s QI.
tively received by the taxpayer, thereby triggering However, your relationship to the taxpayer

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