2018 Tax Alert - Like Kind Exchanges Section

January 8, 2018 Alerts and Newsletters

The following is the Like Kind Exchanges section of the 2018 client advisory "Tax Alert: How the New Tax Laws Will Affect You Now and in the Future."
The full version of this client advisory is available here.

Prior to the new law, property eligible to be exchanged in a tax-free like-kind exchange included not only real property but also personal property, including intangible personal property such as patents and other intellectual property. Now, under the new rules tax-free like-kind exchanges only apply to real property and the real property cannot be held primarily for sale (i.e., the equivalent of inventory). This means that no gain or loss is recognized on the exchange of real property that is held for productive use in a trade or business or for investment if the real property is exchanged solely for real property of like-kind which is to be held either for productive use in a trade or business or for investment.

Exchanges of personal property and intangible property no longer qualify as tax-free under IRC Section 1031 for exchanges completed after December 31, 2017. Exchanges of machinery, equipment, vehicles, cybercurrency, patents and other intellectual property, artwork, collectibles, and other intangible business assets will no longer be eligible for tax-free like-kind treatment.

However, there is a transition rule for forward exchanges or reverse exchanges that occur prior to January 1, 2018. In a forward exchange, if the taxpayer disposes of the relinquished property before January 1, 2018 or in a reverse exchange, if the taxpayer receives the replacement property before January 1, 2018, then the old rules still apply and the property can qualify for tax-free like-kind exchange treatment if all the other requirements under IRC Section 1031 are satisfied. Therefore, personal property could qualify under the transition rule. By way of example, under an exchange agreement, A transfers equipment (relinquished property) to a qualified intermediary (QI) on December 30, 2017. The QI has to acquire like-kind equipment (replacement property) identified by A within 45 days and transfer the equipment to A within 180 days after the transfer of the relinquished property. Here, the exchange of personal property presumably will qualify as a tax-free like-kind exchange if the other requirements provided under the prior law are satisfied.


The Act has made substantial changes to the tax laws. There are many "glitches" in the Act that will need to be addressed in technical correction legislation. Since technical correction legislation requires a 60% vote in the Senate (it cannot come under reconciliation rules), there will need to be bi-partisan cooperation to fix the problems that such fast paced passage of the Act produced. Second, technical corrections require unanimous consent by both the majority and minority staffs of the House Committee on Ways and Means and the Senate Finance Committee. If anyone disagrees about the legislative intent of a provision and whether the statute reflects that intent, then the provision is not a technical correction but, rather, a change in policy. Thus it may take quite a while for any technical correction legislation to be passed.

Effective tax planning including choice of entity structures will be made based on the new laws that are now in effect. Only time will tell how these changes will impact individuals, businesses, and the economy.

If you have any particular area of interest or concern regarding how these changes directly affect you or your business, please feel free to contact our tax attorneys, Cheryl Johnson or Jen Green.

This communication is intended for general information purposes and as a service to clients and friends of Verrill Dana, LLP. This publication, which may be considered advertising under the ethical rules of certain jurisdictions, should not be construed as legal advice or a legal opinion on any specific facts or circumstances, nor does it create attorney-client privilege.

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