IRS Proposes Like-Kind Exchange Regulations

On June 11, 2020, the IRS and Treasury issued highly anticipated proposed regulations addressing changes made in 2017 under the Tax Cuts and Jobs Act (TCJA) governing like-kind exchanges under Section 1031 of the tax code. Before the TCJA, Section 1031 provided that no gain or loss is recognized on an exchange of like-kind real property or certain personal property held for productive use in a trade or business or for investment. Under the TCJA, Section 1031 now applies only to exchanges of real property. As a result of this change, it became crucial to define real property for purposes of Section 1031. Moreover, it is not uncommon for an exchange of real property to include personal property (e.g., a furnished office building). The proposed regulations provide a detailed definition of real property and a safe harbor for personal property transferred with real property.