The sale or exchange of property is generally a taxable event. However, under IRC Section 1031, no gain or loss is recognized if property held for productive use in a trade or business or for investment is exchanged for property of a “like kind” which is to be held for productive use in a trade or business or for investment, when certain parameters are met. Section 1031 of the Internal Revenue Code has historically allowed taxpayers to defer gains on real or personal property exchanged for property of a “like kind” until the future sale of the replacement property.
The Tax Cuts and Jobs Act of 2017 (TCJA) now limits the non-recognition treatment to only like-kind exchanges of real property (not held primarily for sale), eliminating the taxpayer’s ability to defer gains on all types of personal property, including intangible property. Exchanges of machinery, equipment, vehicles, intellectual property, artwork, and other personal and intangible business assets no longer qualify. The provision generally applies to exchanges completed after December 31, 2017. However, if one side of the exchange transaction (either the disposition or the receipt of the exchange property) occurred before January 1, 2018, then the pre-TCJA rules will apply.