Changes to Personal Property in 1031 Exchanges Under the 2018 Tax Act

by Toija Buetler, Attorney
Buetler Exchange Group LLC

As a result of the 2018 Tax Act, exchanges of personal property are  no longer available as part of 1031 Exchanges.

If the property being sold contains personal property -- for example, appliances --prior practice has been to take all sale proceeds into the exchange account and use it to buy the replacement property that also contains appliances.  With the new tax code changes the portion of the sale allocable to the personal property will be taxable -- at depreciation recapture rates -- whether or not we take those funds through the exchange. Sellers might consider taking that part of the sale proceeds directly to themselves so they have cash on hand to help with the tax bill the following spring.

What if the property contains personal property?  If we use funds from the sale of something that was purely real estate and now we are buying something that is real and personal property…the personal property part of the purchase is taxable as it is not “like kind” with the property sold.

If you don't want to use real estate proceeds to buy personal property, consider bringing separate funds to escrow to pay for the personal property.