PRESENTED BY: BOB BOWER SENIOR VICE PRESIDENT CBRE

PRESENTED BY: BOB BOWER SENIOR VICE PRESIDENT CBRE

TABLE OF CONTENTS SECTION I 1031 EXCHANGE SECTION III SECTION IV SECTION V SECTION VI SECTION VII SECTION VIII SECTION IX SECTION X SECTION XI LEASEHOLD INTEREST and EXCHANGES CLOSING COST and 1031 EXCHANGES A BRIEF HISTORY of the 1031 EXCHANGE PARTNERS and 1031 EXCHANGES REVERSE EXCHANGES SELLER FINANCING and REVERSE EXCHANGES VESTING and 1031 EXCHANGES REFINANCING and 1031 EXCHANGES LIKE KIND PROPERTIES

1031 EXCHANGE 1031 Exchange refers to the section of the Internal Revenue Code that provides for the tax deferred exchange of real and personal property. Why do a 1031 Exchange? With a 1031 Exchange investors can trade up, consolidate, diversify, leverage or relocate their investments and not be penalized by having to pay either capital gains or recapture (the amount deducted while owning the property is taxable if the property is sold). The taxes are deferred until the investor does a non 1031 Exchange sale or the property goes to the investors estate. When the property passes into an estate there is a step-up in basis to the then current market value. 1031 Exchanges can be both a powerful wealth building tool and a way of adjusting investment portfolios to more accurately reflect life style choices and circumstances. An example would be an apartment owner wanting to trade into NNN Properties or Tenant in Common properties that require little to no management. Other investment objectives are to adjust the amount of risk and volatility of one type of property to another, increase cash flow or to take the maximum amount of cash out of a real estate asset without triggering any taxes by using a Zero. Zeros are also used by investors selling highly leveraged properties, investors who have given up a property in foreclosure and for estate planning purposes when no immediate cash flow is desired. Typical leverage for Zeros range from the high 80% for fee simple properties to the low 90% for leaseholds. Another type of real estate exchange is a 1033 Exchange. These occur when there is an involuntary taking of the tax payer's property either by a government, casualty loss such as a fire or natural disaster. The rules for 1033 Exchanges are similar to a 1031 Exchange but do vary in some significant respects. What are the general guidelines for a 1031 Exchange? The value of the 1031 Exchange replacement property must be equal to or greater than the value of the relinquished property less any selling expense. The equity in the 1031 Exchange replacement property must be equal to or greater than the equity in the relinquished property. All of the net proceeds from the sale of the 1031 Exchange relinquished property must be used to acquire the 1031 replacement property. Constructive receipt of sales proceeds is prohibited during the 1031 Exchange process. Deadlines for identifying and closing on the 1031 replacement property must be followed.

What are 1031 Accommodators and Qualified Intermediary (QI)? A 1031 Accommodator is the same thing as a Qualified Intermediary. Frequently 1031 Accommodators are referred to as a QI (short for Qualified Intermediary). The role of the QI or 1031 Accommodator is similar to but not identical to that of a real estate escrow company. Unlike the escrow company the 1031 Accommodator handles the paper work and transfer of title for 1031 Exchanges. The seller/taxpayer of the 1031 Exchange property enters into a written agreement with the 1031 Accommodator. The duties of the 1031 Accommodator include transferring the relinquished property to the buyer, and transferring the 1031 replacement property to the taxpayer pursuant to the 1031 Exchange agreement. The 1031 Accommodator holds the proceeds from the sale of the relinquished property beyond the actual or constructive control of the seller of the 1031 Exchange property. The 1031 Accommodator or QI also prepares the necessary 1031 Exchange documents to accomplish a tax deferred 1031 Exchange. This includes documenting the proper identification of the 1031 replacement property(s) within the 45 day time limit. Anyone who is related to the taxpayer, or who has had a financial relationship with the taxpayer within the two years prior to the close of escrow of the exchange cannot be used as the 1031 Accommodator or QI. This means that the taxpayer cannot use their current attorney, certified public accountant or real estate agent as their 1031 Exchange Accommodator. A 1031 Accommodator or QI should be properly bonded and insured. Relevant educational and experience in tax, law or finance are highly desirable. 1031 Exchange funds should be kept in a segregated account (not comingled with other monies) and placed in liquid highly secure investment instruments. Currently Nevada is the only state that requires a 1031 Accommodator or Qualified Intermediary (QI) to be licensed. What is 1031 Exchange boot? 1031 Exchange boot is any property received by the taxpayer in the exchange which is not likekind to the relinquished property. 1031 Exchange boot is characterized as either "cash" boot or "mortgage" boot. Realized Gain is recognized to the extent of net boot received. What is 1031 Exchange like kind? Real or personal property of the same nature or quality is like kind in a 1031 Exchange. Generally, 1031 Exchange real property is like kind to all other real property as long as it is held for investment or productive use in a trade or business. Foreign real property can be exchanged for foreign real property while US properties can only be exchanged for US properties. Personal Property must be either the same General Asset Class or Product Class for a 1031 Exchange. What are the 1031 Exchange 45 and 180 day deadlines? The 1031 Exchange clock starts with the close of the property being sold. From the close date there are 45 days to identify the 1031 Exchange properties to be purchased and 180 days to complete the purchase (or the due date for your tax return-whichever is earlier). Both periods are calendar days. If the 45th or 180th day falls on a weekend or holiday, the deadlines still apply. There are no extensions for legal holidays or Saturday or Sunday.

What constitutes property 1031 Exchange identification of 1031 replacement property? 1031 Exchange property is properly identified only if you clearly describe it in a written document signed by you and hand delivered, mailed, faxed to the person obligated to transfer the 1031 replacement property to you (called 1031 Accommodator, Qualified Intermediary or QI) or to any other person "involved in the exchange" other than you or any one disqualified under Treasury Regulation 1.1031 (k)-1(k). The 1031 replacement property description needs to be unambiguous. Among other things an acceptable 1031 replacement property description needs to identify the property using the legal description, street address or distinguishable name. If more 1031 Exchange properties than are permitted are identified it will be treated as if no 1031 replacement property was identified and the 1031 Exchange will be disallowed. To defer taxes, how much must be invested? The minimum amount to be invested in a 1031 Exchange must be equal to or greater than the sales price on the property being sold less any selling expenses. If there is debt on the 1031 Exchange property being sold that amount needs to be replaced by new debt or cash from the investor's pocket. How many 1031 Exchange properties may be identified as 1031 replacement properties? 1031 Exchange investors can use any one of the following three rules governing identifying 1031 Exchange Replacement Properties: Rule Three: Any three properties of any value. Rule 200%: Any number of 1031 Replacement Properties not to exceed 200% of the sold property. Rule 95%: Any number of 1031 Replacement Properties of any value. 95% of identified properties must be closed in 180 days or the exchange will be disallowed. Can multiple owners of a single property do a 1031 Exchange into different properties? If the intent of various owners of a single properties contemplating a 1031 Exchange is to go their separate way it is important to first review with legal counsel the manner in which the 1031 Exchange property title is held before selling. Once any title issues are resolved the property can be sold using a 1031 Exchange. In such a circumstance one investor can do a 1031 Exchange while another can receive cash and pay taxes. It is very important that the investors be clear on their intentions before entering into a 1031 Exchange agreement with a 1031 Accommodator (also known as Qualified Intermediary or QI). Once the property being sold is closed and all 1031 Exchange investors have entered into an 1031 Exchange agreement with their 1031 Accommodator the exchangers lose their options to divide the proceeds and buy separate 1031 replacement properties.

Does the 1031 Exchange investor have access to the sale proceeds during the exchange? Part of doing a 1031 Exchange is that the investor does not take constructive receipt of the sales proceeds. If no 1031 Exchange property is identified during the 45 day identification period the investor can receive their money on the expiration of the identification period. If the investors identifies properties during the 45 day identification period then does not close on an identified 1031 replacement property the investor will have to wait the full 180 day waiting period to receive their money. There are a few limited exceptions to this1031 Exchange rule. Is a delayed 1031 Exchange the only way to do a 1031 Exchange? There are five ways to accomplish a 1031 Exchange. They are a Delayed Exchange, Reverse Exchange, Simultaneous Exchange, Improvement Exchange and a Personal Property Exchange. How should the 1031 replacement property be vested? The investor needs to hold title in the 1031 replacement property exactly as they held title to the property they sold. What this means is that the person or entity beginning the 1031 Exchange needs to be the same person or entity ending the 1031 Exchange. An exception would be a husband and wife (or individual) holding a revocable living trust. Providing the trust is a true pass through the 1031 Exchange property can be sold then and title to the new 1031 replacement property can be held by an individual(s). Other exceptions would be if a single member LLC sells and the sole member buys as an individual or if an individual dies after selling and his or her estate purchases the 1031 replacement property. Can an investor use a personal bank account to hold 1031 Exchange sales proceeds? No. The IRS regulations are very clear. The taxpayer may not receive the proceeds or take constructive receipt of the funds in any way, without disqualifying the 1031 Exchange. Is it too late to start a tax-deferred exchange after signing the sales contract before closing? No, as long as title has not been transferred. Once the sale is closed it is too late to do a 1031 Exchange even if the proceeds check has not yet been cashed. What is a "multi-asset" 1031 Exchange? A multi-asset 1031 Exchange involves both real and personal property. For example the sale of a hotel frequently involves both real estate and furnishings and equipment. In this example a 1031 Exchange would be done for the land and building and another 1031 Exchange for the furnishing and equipment in a separate 1031 Exchange. The definition of like-kind for personal property and equipment is much narrower than for real estate. What is the difference between "realized" gain and "recognized" gain? Realized gain is the increase in the taxpayer's economic position as a result of the exchange. In a sale, tax is paid on the realized gain. Recognized gain is the taxable gain. Recognized gain is the lesser of realized gain or the net boot received.

LEASEHOLD INTEREST AND EXCHANGES It is generally understood that in order to take advantage of the tax deferral benefits of a 1031 Exchange the guideline to be adhered to is that an investor must replace the relinquished property with one that is considered like kind. Like kind is defined as any other real estate held for productive use in a trade or business investment and refers to the nature or character and not the grade or quality of the property. For example a vacant lot held for investment can be exchanged for a class A medical office building. A less well known fact is that Regulation 1.1031(a)-1(c)(2) allows the investor to exchange conventionally owned real estate for a leasehold interest. A leasehold interest is one where the investor does not own the ground but rather has a right to a stream of income for a prescribed period of time. Generally, the reason an investor would consider a leasehold interest is a higher level of income than could not otherwise be realized from the same tenant. The requirement to acquire a leasehold interest as replacement property when doing a 1031 Exchange is that there be at least thirty (30) years remaining in the lease term. It is interesting to note that the term(s) of renewal options may be included when determining whether the leasehold interest has a remaining term of 30 years or more or not. In one case the court held that the initial term of 5 years with 10 optional renewal periods of 5 years each was considered like kind. The benefits of exchanging into a long term net lease investments (be it an outright purchase or a leasehold interest) is that they provide stable, predictable income and generally minimize if not eliminate the management headaches associated with investment property. Frequently net leased properties are secured by well-recognized national companies who have been rated by Standard & Poors and Moody s. When considering a 1031 Exchange and investing in net lease or leasehold properties the investor should seek out expert guidance from their CPA and/or real estate attorney prior to finalizing any investment decisions. How long should a property be held to qualify for 1031 Exchange tax deferral? One of the most frequently asked a question regarding 1031 Exchanges is how long the investor should hold their property to qualify for an exchange. Key to understanding the answer to this question is that the intent of the exchanger must be to hold the property for investment or use in a trade or business. The IRS is clear on what does not qualify for a 1031 Exchange regardless of the holding period. This includes properties sold by dealers who hold property for sale and not for investment, and properties sold by investor's who flip them, owning them long enough to resell for a profit The holding time is a clear demonstration of intent, the longer the investor holds the property, the better. An investor with the ability to provide two years' tax returns showing rental income, expenses, and depreciation has proven to be a good indication of intent to hold property for investment purposes.

The outcome of many court cases suggests that two years of tax returns are a good indicator of intent. The IRS recognizes these court cases but is more likely to audit a 1031 exchange where the property was held for less than a year and a day. The issue here is not only the number of tax returns filed but also how long the property was actually held. Theoretically an investor could buy a property on December 31 of one year and sell it on January 1 of the next year holding the property for all of one day. It's true the investor could file two years of tax returns but the intent could be seriously questioned based upon the actual time the property was held. While investor's holding periods of less than a year have held up in court, the investor had the costly expense of going to court to defend their position. Some experts like to point to these cases as validating short term holds. However, the same experts frequently fail to point out that these cases generally fail, and neglect to mention the amount of time and money it took to litigate the investor's point of view. Most tax advisors will recommend that an exchanger hold the property for at least a year and a day to demonstrate intent. An investor should discuss in detail the holding period of an investment with their tax advisors when a 1031 Exchange is part of its investment strategy.

CLOSING COST AND 1031 EXCHANGES When involved in a 1031 Exchange, generally, expenses that are considered non-recurring, such as real estate commissions, will reduce the value requirement of the replacement property and not create a tax liability. Expenses that can create a tax liability, and not permitted to reduce the value of the replacement property if paid with exchange funds, generally, are expenses that are recurring such as property taxes or insurance. Examples of non recurring expenses related to the purchase, sale and exchange are considered allowable and can include the following: Real estate commissions Referral Fees Title insurance premiums Closing or escrow fees Recording Fees Legal or Attorney Fees Tax Advisor or Accounting Fees Transfer taxes Notary fees Expenses that are considered not part of an exchange and are generally disallowed can include: Loan Fees Loan Points mortgage insurance costs Property taxes Prorated Rent Insurance Premiums Security Deposits Payoff of credit card debt Lender's title insurance Credit Reports Non exchange expenses paid with exchange funds are taxable but can be offset by other items such as prepaid taxes. One option is to pay recurring expenses with non 1031 funds to avoid creating taxable boot in the 1031 Exchange. Items such as prorated tax payments or security deposits owed to the buyer can be treated as non-recourse debt if handled properly and can be offset against debt assumed on the new replacement property. Investors should carefully review all aspects of their 1031 Exchange with their tax and or legal advisor fully understand and plan for possible tax consequences.

A BRIEF HISTORY OF THE 1031 EXCHANGE The ability to defer capital gain taxes on the sale of property has been around since 1921. In 1935 the Board of Tax Appeals approved the first modern tax-differed exchange using Qualified Intermediaries. The 1954 Amendment to the Federal Tax Code changed Section 112 (b)(1) number to Section 1031 of the Internal Revenue Code and adopted the present day definitions and description of the tax deferred like-kind exchanges. The Starker family tax-deferred like-kind court decision established the need for regulations regarding delayed tax-deferred exchanges. This now famous case prompted the United States Congress to eventually adopt the 45 calendar day Identification Deadline and the 180 calendar day Exchange Period as part of the Deficit Reduction Act of 1984. The Tax Reform Act of 1986 eliminated accelerated depreciation and put like-kind exchanges in the limelight as being one of the few income tax benefits left for real estate investors. The Revenue Reconciliation Act of 1989 disqualified like-kind exchanges between domestic and non-domestic properties and placed a two year holding period requirement on related party exchanges. Revenue Procedure 2000-37 gave investors guidelines on how to structure reverse tax-deferred like-kind exchanges transactions. Revenue Procedure 2002-22 provided investors with additional like-kind replacement property options that had not existed before- Co-Ownership of Real Estate (CORE). CORE is most frequently referred to as Tenants in Common or TIC investments. Revenue Procedure 2005-14 made effective on January 27, 2005 made it possible for the first time for homeowners to use the tax-deferral mechanism of Section 1031 on their primary residence, if specific steps outlined in the code were carefully followed.

PARTNERS AND 1031 EXCHANGES A common way to own investment real estate is as a member of a partnership. Being in a partnership has many advantages but does present a challenge if one of the partners wants to cash out using a 1031 Exchange. In the eyes of the IRS, a partnership "interest" is considered personal property and does not qualify for a 1031 Exchange. The general rule that is that the "entity" that sells the relinquished property must be the same "entity" that purchases the replacement property or, a simpler way to look at it is the tax return that sells the relinquished property must be the same tax return that purchases the replacement property (there is an exception under the "disregarded entity" rule). If the partnership sells the relinquished property and the partnership purchases the replacement property then the transaction is "like kind" and qualifies for a 1031 Exchange. With careful planning and forethought the members of a partnership can structure a transaction, or series of transactions that allow one or all of the partners to cash out and "go their separate ways" while deferring capital gains taxes. A few options are: The partnership can exchange the single property for several like kind properties with an aggregate "equal" value; allowing easy dissolution of the partnership for further exchanges. This strategy is commonly known as "swap and drop". The partnership creates separate limited liability companies (LLCs). The LLCs holds each new property for a sufficient amount of time to prove that they held it for investment to insure the exchange will be valid. The partnership then distributes the LLCs to the individual partners. Some adjustments relative to fair market value may be needed to keep the distributions equal to the respective percentage interest. The partnership can transfer the interest in the real estate to the various owners as Tenants-In- Common (TIC). Holding title as a TIC means that each co owner has an "undivided fractional interest" in the property and provides a separate deed to each co owner. This way of holding title allows each co owner to exchange their interests separately, meaning that one can exchange into another property without the other co owners. The partnership could purchase the replacement property and after it closes refinance and the proceeds can be distributed to the partner who wants to cash out. The common requirement for all of these is that the property be held long enough to qualify as an investment. Doing the ground work for a successful 1031 Exchange should be done long before the actual exchange happens. This is done to minimize the risk of the IRS claiming that the individual members or partners purchase the property for resale rather than for investment or that the exchange was really an attempt to exchange partnership interest which as mentioned above, is excluded as like-kind property under a 1031 Exchange. As always each investor should consult with their tax/legal professional to discuss the risks and other factors involved with partnerships prior to making any decisions.

REVERSE EXCHANGES What is a Reverse 1031 Exchange, how can it benefit an investor, and what are the risks involved? In a nut shell a Reverse 1031 Exchange allows the investor to purchase a replacement property before selling the property to be relinquished. It can also be used when the investor wants to acquire a property and construct improvements on it before taking title. The advantage to structuring an exchange this way is that the investor has more than the traditional 45 days to identify their replacement property. The main disadvantage is that the investor cannot depend on the cash coming from the sale of its relinquished property to purchase the replacement property. The rules governing reverse exchanges can be summarized as follows: The 5 Day Rule - A Qualified Exchange Accommodation Agreement must be entered into between the taxpayer and the exchange accommodator titleholder (QI or Qualified Intermediary in most cases) within five business days after title to the property is transferred to the exchange accommodation titleholder. The 45 Day Rule - The property to be relinquished (sold) must be identified within 45 days. More than one property can be identified using similar rules to those used when doing a Delayed Exchanges (3 Property Rule, 200% Rule and the 95% Rule). The 180 Day Rule - The Reverse Exchange must be completed within 180 days of taking title by the exchange accommodation titleholder. The key to successfully completing either a Reverse or Delayed Exchange is good planning, having a clear set of investment objectives and having the right players on the investor s team. Some of the members of the investor s team should be their Real Estate Investment Strategic Advisor, a CPA, a Real Estate Attorney, a Qualified Intermediary (QI) and, a provider of 1031 replacement property. We suggest that the investor consult with each member of their team as they step through their 1031 Exchange.

SELLER FINANCING AND 1031 EXCHANGES As interest rates continue to rise we expect to see more seller financing (or seller carry backs) taking place. The motivation for a seller to carry back a note in exchange for their property typical is to facilitate a transaction that would not have happened with conventional financing at the price they are asking. Outside of the possibility of taking back the property if the new owner defaults on the note carried, is the impact that a loan for the property will have on the seller s taxes. If not structured carefully the seller will end up paying capital gains taxes on the money being paid back as the loan is being paid off. If the seller plans carefully the issues around unwanted taxes can be addressed to the seller s advantage and still to a seller carry back. Some possible solutions to the potential tax liability created by a seller carry back are as follows: Assign The Note to the Seller of the Replacement Property: If the seller of the replacement property will accept the Note as a portion of the consideration for the property to be acquired, this will allow the amount of the Note to be included in the exchange. Sell The Note: The Exchanger can sell the note to an outsider, investor, or relative, as long as the funds go directly to escrow, or to the Qualified Intermediary. The funds will then be used to purchase the replacement property. Buy the Note: If the Exchanger has funds outside of the exchange with which to purchase the Note, (replacing the Note with cash in the exchange account), the Note will be Assigned to the Exchanger, who can then collect on the Note. This will usually result in the exchanger paying taxes only on the interest received. Please be aware that in order to execute any of the above strategies and qualify for a 1031 exchange any decision being made regarding a Seller Carry Back must be made prior to the closing of escrow of the property to be relinquished. Also, the note should be drawn to reflect the Qualified Intermediary as the beneficiary who can then assign it to the appropriate entity. Please consult your CPA and real estate attorney for tax related advice and, to assure the contracts involving your sale are properly drafted.

VESTING AND 1031 EXCHANGES A basic requirement of a 1031 Exchange is that investors take title to a replacement property in the same way that it was held by the relinquished property (i.e. the same name on the tax return). For example, if you held title to relinquished property as Fred Jones, you could not take title to the replacement property as Jones Investment. The only time the IRS allows for an investor to effect a 1031 tax deferred exchange without the replacement and the relinquished property holding title in the same name is if the title of either property is held in what is known as a disregarded entity. A disregarded entity is one that does not file a separate tax return and where the Principal of that entity is filing the tax return that will include that disregarded entity. The list includes a Revocable Living Trust, an Illinois Type Land Trust, and a Single Member LLC. There are brief descriptions of each below. The Revocable Living Trust does not file an income tax return. All of the rents, dividends, interest, expenses, etc. arising from assets owned by the living trust are reported in an investor's personal tax return. So, if Fred Jones owned the relinquished property in the name of the "Jones Revocable Living Trust," he can sell it, do an exchange, and buy the replacement property as "Fred Jones" because the same tax return owned the relinquished property. An Illinois Type Land Trust is a type of trust where the property is held in the name of the trust, but multiple owners of the trust are considered the true owners -- the trust does not file a tax return. If there are three owners, then three tax returns for 1031 purposes. If Fred is one of the owners, he can sell his share and buy replacement property as "Fred Jones," again because it is all the same tax return. Illinois Type Land Trusts do not protect the owners from personal liability and are not commonly used. A Single Member LLC does protect an investor from personal liability, but the tax return is filed as separate from the individual members. When you file a tax return for an LLC with only one owner, the IRS will send it back and tell you to report the income and expenses on your own individual tax return. If Fred Jones sells his relinquished property, he can buy the replacement property as "Jones Investments, LLC" if he is the only member, because again, it is all the same taxpayer. It is important that an investor discuss any investment decision thoroughly, with their tax and legal professionals regarding vesting issues when doing 1031 Exchanges.

REFINANCING AND 1031 EXCHANGES A 1031 Exchange, also known as a Starker exchange or a tax-deferred exchange, permits investment property owners to sell a property and defer tax payments by reinvesting the proceeds into a "like-kind" investment property or properties. A 1031 Exchange is enabled by Section 1031 in the Internal Revenue Code. To qualify for a 1031 Exchange investors are not allowed access to proceeds from the sale of the relinquished property. However, if carefully planned and done with the right intent, it is possible to have access to the equity and avoid the IRS deeming the sale a taxable event. Allowable access to the funds can be accomplished by refinancing prior to the sale of the relinquished property or after the purchase of the replacement property. How the IRS decides when refinancing is appropriate is a gray area. The best guidance can be found by reviewing past IRS decisions. According to case law, the amount of time between the refinance and the sale of the property (the closer the refinance to the close of escrow the higher the chance of the exchange being disallowed) along with the intent of the exchanger and who s lending the money (family members are not acceptable lenders ) are key factors indicating the appropriateness of investors intent. Should the IRS choose to audit a refinanced exchange, investors with a good non tax reason usually win. When the purpose of the refinance is to avoid payment of taxes or if the refinance appears to be just another step in a series of transactions designed to avoid the payment of taxes, investors tend to lose their argument with the IRS. Justifiable non tax reasons for refinancing, either immediately before or after a 1031 Exchange transaction, include: A need for cash for documented expansion plans * Changes in interest rates * Changes in Investors financial condition that would encourage an exchange. Refinancing the replacement property following the close of escrow is usually met with less scrutiny than refinancing the relinquished property immediately prior to the sale. An accountant or real estate attorney familiar with 1031 Exchanges should be consulted prior to making any decisions regarding refinancing a property involved in a 1031 Exchange.

LIKE KIND PROPERTIES IRC Section 1031 does not limit like-kind property to certain types of real estate. The term refers to the nature or character of the property, rather than its grade or quality. Real property must be exchanged for like-kind real property. Real property is not considered like-kind to personal property. What is excluded? An Exchanger s primary residence and property held primarily for resale (dealer property) are excluded from tax deferral under IRC Section 1031. [Note: Primary residences qualify for tax exclusion, with certain restrictions, under IRC Section 121.] Qualifying Real Property The types of real estate, which can be exchanged is extremely broad. Any real estate held for productive use in a trade or business or for investment whether improved or unimproved is considered like-kind. Improvements to real estate refer to the grade or quality, not the nature or character of the real property. Like-kind examples: Unimproved for improved property Fee for a leasehold with 30+ years to run Commercial building for vacant land Duplex for commercial property Single-family rental for an apartment Industrial property for rental resort property Qualifying Personal Property Personal property that qualifies for a 1031 Exchange must be held for productive use in a trade or business or for investment. In general, qualifying properties must both be in the same General Asset Class or within the same Product Class. The Standard Industrial Classification Manual provides categories for General Asset Classes of depreciable tangible personal property. It is critical to review any personal property transactions with tax advisors because the rules are more restrictive than for real property. Examples of qualifying personal property exchanges include: Mexican gold coins for Austrian gold coins Aircraft for aircraft Restaurant equipment for restaurant equipment Computers for computers CBRE, Inc. does not give tax or legal advice. The information contained herein should not be relied upon as a substitute for tax or legal advice obtained from a competent tax and/or legal advisor.