Like kind exchanges: Fundamentals of implementing a corporate real estate programme

Abstract

The Internal Revenue Code (IRC) section 1031 provides that ‘no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment’. 26 USC $1031(a)(1). This provision has particular utility for entities taxed as C‐Corporations, in that they do not enjoy a preferential tax rate on the sale of capital assets and IRC 1221 assets. It also has utility for real estate investment trusts (REITs) not wishing to pass through recognition of gains resulting from necessary redeployment of capital in other real estate sectors or geographic regions. This paper will explore the fundamental issues in accomplishing a successful exchange of real property and in adopting a programmatic approach to a series of exchanges. While it contains a brief summary of authority, the same is provided not as legal advice, but as context for the administrative aspect of an exchange programme, which is the topic of the paper. This paper should not be construed as legal advice. Before commencing or not commencing an exchange or series of exchanges, consult your tax counsel or adviser.