What types of investments qualify for Section 1031 tax-deferred exchanges?
1031 exchanges can make a substantial financial difference for NYC property investors. There are certain rules to follow in order to take advantage of them, but they may offer more flexibility than most realize. So what types of assets can you acquire and exchange while retaining the best tax benefits?
The key to enjoying 1031 protections is all about exchanging ‘like-kind’ property. Unfortunately many NYC property investors have forgone the potential savings by not being aware of how broad this term and application can be.
‘Like-kind’ generally does not describe the aesthetics or features of a property. That means you don’t have to trade one townhome for another, or one 10 unit multifamily apartment building for another 10 unit building. In fact, some attorneys would go so broad as saying that one piece of investment property is like-kind to virtually all others due to its nature. So you may change single family homes for condos, condos for lots for development, vacant land for industrial warehouses, office buildings for mixed use properties, a duplex for a 10 story building, and so on.
You may even be able to trade leaseholds, equipment, furnishings, and art as ‘like-kind’ investments.
Forbes argues that under certain conditions you may also benefit from a 1031 exchange on vacation homes and retirement homes providing certain rules are met.
So what can’t you do?
According to theIRS these types of investments specifically cannot qualify for 1031 exchange benefits:
The best formula for a truly successful series of exchanges which fully optimize the available tax breaks is to consult with a 1031 expert who can work with you to customize a sound long term strategy, as well as finding assistance in lining up investment properties to acquire in advance.