SECTION 1.1031(a)-1. PROPERTY HELD FOR PRODUCTIVE USE IN TRADE OR
BUSINESS OR FOR INVESTMENT.
(a) IN GENERAL--
(1) EXCHANGES OF PROPERTY SOLELY FOR PROPERTY OF A LIKE KIND. Section
1031(a)(1) provides an exception from the general rule requiring the
recognition of gain or loss upon the sale or exchange of property.
Under section 1031(a)(1), no gain or loss is recognized if property
held for productive use in a trade or business or for investment is
exchanged solely for property of a like kind to be held either for
productive use in a trade or business or for investment. Under
section 1031(a)(1), property held for productive use in a trade or
business may be exchanged for property held for investment.
Similarly, under section 1031(a)(1), property held for investment may
be exchanged for property held for productive use in a trade or
business. However, section 1031(a)(2) provides that section
1031(a)(1) does not apply to any exchange of--
(i) Stock in trade or other property held primarily for sale;
(ii) Stocks, bonds, or notes;
(iii) Other securities or evidences of indebtedness or interest;
(iv) Interests in a partnership;
(v) Certificates of trust or beneficial interests; or
(vi) Choses in action.
Section 1031(a)(1) does not apply to any exchange of interests in a
partnership regardless of whether the interests exchanged are general
or limited partnership interests or are interests in the same
partnership or in different partnerships. An interest in a
partnership that has in effect a valid election under section 761(a)
to be excluded from the application of all of subchapter K is treated
as an interest in each of the assets of the partnership and not as an
interest in a partnership for purposes of section 1031(a)(2)(D) and
paragraph (a)(1)(iv) of this section. An exchange of an interest in
such a partnership does not qualify for nonrecognition of gain or
loss under section 1031 with respect to any asset of the partnership
that is described in section 1031(a)(2) or to the extent the exchange
of assets of the partnership does not otherwise satisfy the
requirements of section 1031(a).
(2) EXCHANGES OF PROPERTY NOT SOLELY FOR PROPERTY OF A LIKE KIND. A
transfer is not within the provisions of section 1031(a) if, as part
of the consideration, the taxpayer receives money or property which
does not meet the requirements of section 1031(a), but the transfer,
if otherwise qualified, will be within the provisions of either
section 1031(b) or (c). Similarly, a transfer is not within the
provisions of section 1031(a) if, as part of the consideration, the
other party to the exchange assumes a liability of the taxpayer (or
acquires property from the taxpayer that is subject to a liability),
but the transfer, if otherwise qualified, will be within the
provisions of either section 1031(b) or (c). A transfer of property
meeting the requirements of section 1031(a) may be within the
provisions of section 1031(a) even though the taxpayer transfers in
addition property not meeting the requirements of section 1031(a) or
money. However, the nonrecognition treatment provided by section
1031(a) does not apply to the property transferred which does not
meet the requirements of section 1031(a).
(b) DEFINITION OF "LIKE KIND." As used in section 1031(a), the words LIKE
KIND have reference to the nature or character of the property and not to
its grade or quality. One kind or class of property may not, under that
section, be exchanged for property of a different kind or class. The fact
that any real estate involved is improved or unimproved is not material,
for that fact relates only to the grade or quality of the property and not
to its kind or class. Unproductive real estate held by one other than a
dealer for future use or future realization of the increment in value is
held for investment and not primarily for sale. For additional rules for
exchanges of personal property, see Section 1.1031(a)-2.
(c) EXAMPLES OF EXCHANGES OF PROPERTY OF A "LIKE KIND." No gain or loss is
recognized if (1) a taxpayer exchanges property held for productive use in
his trade or business, together with cash, for other property of like kind
for the same use, such as a truck for a new truck or a passenger
automobile for a new passenger automobile to be used for a like purpose;
or (2) a taxpayer who is not a dealer in real estate exchanges city real
estate for a ranch or farm, or exchanges a leasehold of a fee with 30
years or more to run for real estate, or exchanges improved real estate
for unimproved real estate; or (3) a taxpayer exchanges investment
property and cash for investment property of a like kind.
(d) EXAMPLES OF EXCHANGES NOT SOLELY IN KIND. Gain or loss is recognized
if, for instance, a taxpayer exchanges (1) Treasury bonds maturing March
15, 1958, for Treasury bonds maturing December 15, 1968, unless section
1037(a) (or so much of section 1031 as relates to section 1037(a)) applies
to such exchange, or (2) a real estate mortgage for consolidated farm loan
bonds.
(e) EFFECTIVE DATE RELATING TO EXCHANGES OF PARTNERSHIP INTERESTS. The
provisions of paragraph (a)(1) of this section relating to exchanges of
partnership interests apply to transfers of property made by taxpayers on
or after April 25, 1991.
[T.D. 6500, 25 FR 11910, Nov. 26, 1960, as amended by T.D. 6935, 32 FR
15822, Nov. 17, 1967; T.D. 8343, 56 FR 14854, Apr. 12, 1991; T.D. 8346, 56
FR 19937, May 1, 1991]
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