Internal Revenue Code:Sec. 1031. Exchange of property held for productive use or investment
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter O - Gain or Loss on Disposition of Property
PART III - COMMON NONTAXABLE EXCHANGES
Statute
Sec. 1031. Exchange of property held for productive use or
investment
(a) Nonrecognition of gain or loss from exchanges solely in kind
(1) In general
No gain or loss shall be recognized on the exchange of property
held for productive use in a trade or business or for investment
if such property is exchanged solely for property of like kind
which is to be held either for productive use in a trade or
business or for investment.
(2) Exception
This subsection shall not apply to any exchange of -
(A) stock in trade or other property held primarily for sale,
(B) stocks, bonds, or notes,
(C) other securities or evidences of indebtedness or
interest,
(D) interests in a partnership,
(E) certificates of trust or beneficial interests, or
(F) choses in action.
For purposes of this section, an interest in a partnership which
has in effect a valid election under section 761(a) to be
excluded from the application of all of subchapter K shall be
treated as an interest in each of the assets of such partnership
and not as an interest in a partnership.
(3) Requirement that property be identified and that exchange be
completed not more than 180 days after transfer of exchanged
property
For purposes of this subsection, any property received by the
taxpayer shall be treated as property which is not like-kind
property if -
(A) such property is not identified as property to be
received in the exchange on or before the day which is 45 days
after the date on which the taxpayer transfers the property
relinquished in the exchange, or
(B) such property is received after the earlier of -
(i) the day which is 180 days after the date on which the
taxpayer transfers the property relinquished in the exchange,
or
(ii) the due date (determined with regard to extension) for
the transferor's return of the tax imposed by this chapter
for the taxable year in which the transfer of the
relinquished property occurs.
(b) Gain from exchanges not solely in kind
If an exchange would be within the provisions of subsection (a),
of section 1035(a), of section 1036(a), or of section 1037(a), if
it were not for the fact that the property received in exchange
consists not only of property permitted by such provisions to be
received without the recognition of gain, but also of other
property or money, then the gain, if any, to the recipient shall be
recognized, but in an amount not in excess of the sum of such money
and the fair market value of such other property.
(c) Loss from exchanges not solely in kind
If an exchange would be within the provisions of subsection (a),
of section 1035(a), of section 1036(a), or of section 1037(a), if
it were not for the fact that the property received in exchange
consists not only of property permitted by such provisions to be
received without the recognition of gain or loss, but also of other
property or money, then no loss from the exchange shall be
recognized.
(d) Basis
If property was acquired on an exchange described in this
section, section 1035(a), section 1036(a), or section 1037(a), then
the basis shall be the same as that of the property exchanged,
decreased in the amount of any money received by the taxpayer and
increased in the amount of gain or decreased in the amount of loss
to the taxpayer that was recognized on such exchange. If the
property so acquired consisted in part of the type of property
permitted by this section, section 1035(a), section 1036(a), or
section 1037(a), to be received without the recognition of gain or
loss, and in part of other property, the basis provided in this
subsection shall be allocated between the properties (other than
money) received, and for the purpose of the allocation there shall
be assigned to such other property an amount equivalent to its fair
market value at the date of the exchange. For purposes of this
section, section 1035(a), and section 1036(a), where as part of the
consideration to the taxpayer another party to the exchange assumed
(as determined under section 357(d)) a liability of the taxpayer,
such assumption shall be considered as money received by the
taxpayer on the exchange.
(e) Exchanges of livestock of different sexes
For purposes of this section, livestock of different sexes are
not property of a like kind.
(f) Special rules for exchanges between related persons
(1) In general
If -
(A) a taxpayer exchanges property with a related person,
(B) there is nonrecognition of gain or loss to the taxpayer
under this section with respect to the exchange of such
property (determined without regard to this subsection), and
(C) before the date 2 years after the date of the last
transfer which was part of such exchange -
(i) the related person disposes of such property, or
(ii) the taxpayer disposes of the property received in the
exchange from the related person which was of like kind to
the property transferred by the taxpayer,
there shall be no nonrecognition of gain or loss under this
section to the taxpayer with respect to such exchange; except
that any gain or loss recognized by the taxpayer by reason of
this subsection shall be taken into account as of the date on
which the disposition referred to in subparagraph (C) occurs.
(2) Certain dispositions not taken into account
For purposes of paragraph (1)(C), there shall not be taken into
account any disposition -
(A) after the earlier of the death of the taxpayer or the
death of the related person,
(B) in a compulsory or involuntary conversion (within the
meaning of section 1033) if the exchange occurred before the
threat or imminence of such conversion, or
(C) with respect to which it is established to the
satisfaction of the Secretary that neither the exchange nor
such disposition had as one of its principal purposes the
avoidance of Federal income tax.
(3) Related person
For purposes of this subsection, the term ''related person''
means any person bearing a relationship to the taxpayer described
in section 267(b) or 707(b)(1).
(4) Treatment of certain transactions
This section shall not apply to any exchange which is part of a
transaction (or series of transactions) structured to avoid the
purposes of this subsection.
(g) Special rule where substantial diminution of risk
(1) In general
If paragraph (2) applies to any property for any period, the
running of the period set forth in subsection (f)(1)(C) with
respect to such property shall be suspended during such period.
(2) Property to which subsection applies
This paragraph shall apply to any property for any period
during which the holder's risk of loss with respect to the
property is substantially diminished by -
(A) the holding of a put with respect to such property,
(B) the holding by another person of a right to acquire such
property, or
(C) a short sale or any other transaction.
(h) Special rules for foreign real and personal property
For purposes of this section -
(1) Real property
Real property located in the United States and real property
located outside the United States are not property of a like
kind.
(2) Personal property
(A) In general
Personal property used predominantly within the United States
and personal property used predominantly outside the United
States are not property of a like kind.
(B) Predominant use
Except as provided in subparagraphs (FOOTNOTE 1) (C) and (D),
the predominant use of any property shall be determined based
on - (FOOTNOTE 1) So in original.
(i) in the case of the property relinquished in the
exchange, the 2-year period ending on the date of such
relinquishment, and
(ii) in the case of the property acquired in the exchange,
the 2-year period beginning on the date of such acquisition.
(C) Property held for less than 2 years
Except in the case of an exchange which is part of a
transaction (or series of transactions) structured to avoid the
purposes of this subsection -
(i) only the periods the property was held by the person
relinquishing the property (or any related person) shall be
taken into account under subparagraph (B)(i), and
(ii) only the periods the property was held by the person
acquiring the property (or any related person) shall be taken
into account under subparagraph (B)(ii).
(D) Special rule for certain property
Property described in any subparagraph of section 168(g)(4)
shall be treated as used predominantly in the United States.
Sources
(Aug. 16, 1954, ch. 736, 68A Stat. 302; Pub. L. 85-866, title I,
Sec. 44, Sept. 2, 1958, 72 Stat. 1641; Pub. L. 86-346, title II,
Sec. 201(c)-(e), Sept. 22, 1959, 73 Stat. 624; Pub. L. 91-172,
title II, Sec. 212(c)(1), Dec. 30, 1969, 83 Stat. 571; Pub. L.
98-369, div. A, title I, Sec. 77(a), July 18, 1984, 98 Stat. 595;
Pub. L. 99-514, title XVIII, Sec. 1805(d), Oct. 22, 1986, 100 Stat.
2810; Pub. L. 101-239, title VII, Sec. 7601(a), Dec. 19, 1989, 103
Stat. 2370; Pub. L. 101-508, title XI, Sec. 11701(h), 11703(d)(1),
Nov. 5, 1990, 104 Stat. 1388-508, 1388-517; Pub. L. 105-34, title
X, Sec. 1052(a), Aug. 5, 1997, 111 Stat. 940; Pub. L. 106-36, title
III, Sec. 3001(c)(2), June 25, 1999, 113 Stat. 183.)
Miscellaneous
AMENDMENTS
1999 - Subsec. (d). Pub. L. 106-36, in last sentence, substituted
''assumed (as determined under section 357(d)) a liability of the
taxpayer'' for ''assumed a liability of the taxpayer or acquired
from the taxpayer property subject to a liability'' and struck out
''or acquisition (in the amount of the liability)'' after ''such
assumption''.
1997 - Subsec. (h). Pub. L. 105-34 amended heading and text of
subsec. (h) generally. Prior to amendment, text read as follows:
''For purposes of this section, real property located in the United
States and real property located outside the United States are not
property of a like kind.''
1990 - Subsec. (a)(2). Pub. L. 101-508, Sec. 11703(d)(1),
inserted at end ''For purposes of this section, an interest in a
partnership which has in effect a valid election under section
761(a) to be excluded from the application of all of subchapter K
shall be treated as an interest in each of the assets of such
partnership and not as an interest in a partnership.''
Subsec. (f)(3). Pub. L. 101-508, Sec. 11701(h), substituted
''section 267(b) or 707(b)(1)'' for ''section 267(b)''.
1989 - Subsecs. (f) to (h). Pub. L. 101-239 added subsecs. (f) to
(h).
1986 - Subsec. (a)(3)(A). Pub. L. 99-514 substituted ''on or
before the day'' for ''before the day''.
1984 - Subsec. (a). Pub. L. 98-369, Sec. 77(a), in amending
subsec. generally, designated existing provisions as par. (1),
substituted ''No gain or loss shall be recognized on the exchange
of property held for productive use in a trade or business or for
investment if such property is exchanged solely for property of
like kind which is to be held either for productive use in a trade
or business or for investment'' for ''No gain or loss shall be
recognized if property held for productive use in trade or business
or for investment (not including stock in trade or other property
held primarily for sale, nor stocks, bonds, notes, choses in
action, certificates of trust or beneficial interest, or other
securities or evidences of indebtedness or interest) is exchanged
solely for property of a like kind to be held either for productive
use in trade or business or for investment'', and added pars. (2)
and (3).
1969 - Subsec. (e). Pub. L. 91-172 added subsec. (e).
1959 - Subsecs. (b) to (d). Pub. L. 86-346 inserted references to
section 1037(a) in subsecs. (b) and (c) and in first two sentences
of subsec. (d).
1958 - Subsec. (d). Pub. L. 85-866 inserted in first sentence a
comma between ''exchanged'' and ''decreased'' and ''or decreased in
the amount of loss'', and substituted in second sentence
''subsection'' for ''paragraph''.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-36 applicable to transfers after Oct.
18, 1998, see section 3001(e) of Pub. L. 106-36, set out as a note
under section 351 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1052(b) of Pub. L. 105-34 provided that:
''(1) In general. - The amendment made by this section (amending
this section) shall apply to transfers after June 8, 1997, in
taxable years ending after such date.
''(2) Binding contracts. - The amendment made by this section
shall not apply to any transfer pursuant to a written binding
contract in effect on June 8, 1997, and at all times thereafter
before the disposition of property. A contract shall not fail to
meet the requirements of the preceding sentence solely because -
''(A) it provides for a sale in lieu of an exchange, or
''(B) the property to be acquired as replacement property was
not identified under such contract before June 9, 1997.''
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11701(h) of Pub. L. 101-508 provided that the amendment
made by that section is effective with respect to transfers after
Aug. 3, 1990.
Section 11703(d)(2) of Pub. L. 101-508 provided that: ''The
amendment made by paragraph (1) (amending this section) shall apply
to transfers after July 18, 1984.''
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7601(b) of Pub. L. 101-239 provided that:
''(1) In general. - Except as provided in paragraph (2), the
amendments made by this section (amending this section) shall apply
to transfers after July 10, 1989, in taxable years ending after
such date.
''(2) Binding contract. - The amendments made by this section
shall not apply to any transfer pursuant to a written binding
contract in effect on July 10, 1989, and at all times thereafter
before the transfer.''
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 77(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
''(1) In general. - Except as otherwise provided in this
subsection, the amendment made by subsection (a) (amending this
section) shall apply to transfers made after the date of the
enactment of this Act (July 18, 1984) in taxable years ending after
such date.
''(2) Binding contract exception for transfer of partnership
interests. - Paragraph (2)(D) of section 1031(a) of the Internal
Revenue Code of 1986 (formerly I.R.C. 1954) (as amended by
subsection (a)) shall not apply in the case of any exchange
pursuant to a binding contract in effect on March 1, 1984, and at
all times thereafter before the exchange.
''(3) Requirement that property be identified within 45 days and
that exchange be completed within 180 days. - Paragraph (3) of
section 1031(a) of the Internal Revenue Code of 1986 (as amended by
subsection (a)) shall apply -
''(A) to transfers after the date of the enactment of this Act
(July 18, 1984), and
''(B) to transfers on or before such date of enactment if the
property to be received in the exchange is not received before
January 1, 1987.
In the case of any transfer on or before the date of the enactment
of this Act which the taxpayer treated as part of a like-kind
exchange, the period for assessing any deficiency of tax
attributable to the amendment made by subsection (a) (amending this
section) shall not expire before January 1, 1988.
''(4) Special rule where property identified in binding contract.
- If the property to be received in the exchange is identified in a
binding contract in effect on June 13, 1984, and at all times
thereafter before the transfer, paragraph (3) shall be applied -
''(A) by substituting 'January 1, 1989' for 'January 1, 1987',
and
''(B) by substituting 'January 1, 1990' for 'January 1, 1988'.
''(5) Special rule for like-kind exchange of partnership
interests. - Paragraph (2)(D) of section 1031(a) of the Internal
Revenue Code of 1986 (as amended by subsection (a)) shall not apply
to any exchange of an interest as general partner pursuant to a
plan of reorganization of ownership interest under a contract which
took effect on March 29, 1984, and which was executed on or before
March 31, 1984, but only if all the exchanges contemplated by the
reorganization plan are completed on or before December 31, 1984.''
EFFECTIVE DATE OF 1969 AMENDMENT
Section 212(c)(2) of Pub. L. 91-172, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''The
amendment made by paragraph (1) (amending this section) shall apply
to taxable years to which the Internal Revenue Code of 1986
(formerly I.R.C. 1954) applies.''
EFFECTIVE DATE OF 1959 AMENDMENT
Amendment by Pub. L. 86-346 effective for taxable years ending
after Sept. 22, 1959, see section 203 of Pub. L. 86-346, set out as
an Effective Date note under section 1037 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section
1(c)(1) of Pub. L. 85-866, set out as a note under section 165 of
this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title
XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to
any plan, such plan amendment shall not be required to be made
before the first plan year beginning on or after Jan. 1, 1989, see
section 1140 of Pub. L. 99-514, as amended, set out as a note under
section 401 of this title.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 83, 197, 424, 453, 454,
704, 857, 1035, 1036, 1037, 1060, 1245, 1250, 2032A, 2057 of this
title.
