Qualifying Property

In general, all property or equipment held for investment purposes or used in a business or trade qualifies for exchange treatment. However, certain types of property are specifically excluded from Section 1031 treatment, namely:

  • Property you use for personal purposes, such as your home or family car
  • Stock in trade or other property held primarily for sale such as inventories, raw materials, and real estate held by dealers
  • Stocks, bonds, notes or other securities or evidences of indebtedness
  • Certificates of trust or beneficial interest
  • Interests in a partnership or multi-member limited liability company

A percentage interest in property as a tenant in common qualifies if the tenancy in common is carefully structured to avoid recharacterization as a partnership for federal tax purposes.

Exchange Agreement

A document prepared at the beginning of an exchange outlining all the understandings between the taxpayer and the Qualified Intermediary. This document must be signed by the taxpayer before the exchange can begin.