§ 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
a liability of the taxpayer or acquired from the taxpayer
property subject to a liability, such assumption or
acquisition (in the amount of the liability) 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 rule for foreign real property
For purposes relating to this discussion,
real property located in the United States and real
property located outside the United States are not property
of a like kind.
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