IRS Issues Final Like-Kind Exchange Regulations

On November 23, 2020, the IRS and Treasury issued final regulations (T.D. 9935) that amend and finalize proposed regulations issued in June, 2020. We discussed the proposed regulations here.

The final regulations address changes made in 2017 under the Tax Cuts and Jobs Act to Section 1031, which limited like-kind exchange treatment to exchanges of real property. The final regulations generally follow the proposed regulations, with some notable changes, discussed below.

Defining "Real Property"

The proposed regulations provided that state and local law definitions of real property were not controlling under Section 1031. The final regulations, however, provide that if property is considered real property under state or local law on the date of the exchange, the property will generally also be classified as real property under Section 1031.