Section 1031 like-kind exchanges are not limited to tangible property such as real estate, aircraft or vessels.  Rather, they can include intangible assets such as patents, copyrights, trademarks, customer lists, licenses and franchises.  Goodwill does not qualify for a 1031 exchange.

Because intangible assets are not included in either Asset Classes or Product Classes, the regulations state that an analysis must be made of the nature and character of the rights involved to determine whether the intangible assets to be exchanged qualify as like-kind.  The following examples are provided:
 

·  A copyright on a novel and a copyright on another novel qualify as like-kind.

·  A copyright on a novel and a copyright on a song do not qualify as like-kind.

The IRS ruled in private letter ruling that a radio FCC license was like-kind to a television license. 

A qualifying exchange of intangibles can be of value in a transaction involving the sale of a business where the seller intends to acquire another business with similar assets.  Assets such as intellectual property, licenses, distributorships, franchises and customer lists can be the subject of a Section 1031 exchange. As a result, business exchanges are becoming increasingly more popular. 

If you are considering selling intangible property, please contact us to discuss how you can do so on a tax-deferred basis.