Reverse Exchange. Under IRP Procedure 2000-37 a replacement property may be closed before a replacement property under a safe harbor reverse exchange. An exchange accommodation titleholder (EAT) can hold the replacement property for up to 180 days. The EAT is deemed to be the owner, without the benefits and burdens of ownership. Also, under a IRS ruling, separate, parallel reverse exchange arrangements may be set up for with multiple potential relinquished properties for the same EAT.
Personal Use Investment. 1031 exchange properties must be held for productive use in a trade or business or for investment purposes. However, in some cases residential or vacation properties my qualify as 1031 exchange properties. While appreciation of a real property is relevant, that expected creation of income is not in itself sufficient to classify the property as investment property. Factors including intent at time of purchase, effort to rent, time occupied by investor and family, fair rental by family members, and sweat equity of renovation are weighed. There is an IRS safe harbor that has minimum rental requirements and maximum personal use requirements.
Like Kind Properties. Most real property is considered to be like kind to other real property, as opposed to personal property. A natural gas pipeline constructed along a right of way may be considered like kind as real property, because it is a inherently permanently structure, and will normally remain there a long time and is transferred along with the underlying real estate. Conversely, equipment not considered a structural component of the property is classified as personal property and is not like kind.
5% Boot. Investors are allowed a 5% boot when selling to an unrelated party and buying from a related party, as long as the respective replacement properties are held for at least two years.
