Many taxpayers associate Section 1031 Exchanges with real estate.  This is reasonable, given that real property represents a significant portion of all like-kind exchanges that are completed each year.  Personal property, both tangible and intangible, represent a significant opportunity for businesses to defer substantial capital gains taxes, including depreciation recapture, when trading up to newer or larger assets.

Many categories of personal property qualify for Section 1031 Exchanges, including the following:


                Tangible                                                     Intangible

                 Aircraft                                                        Licenses

                 Vessels and Rail Equipment                     Franchises

                 Fleet Vehicles                                             Copyrights

                 Telecommunications Equipment              Patents

                 Power Plants and Pipelines                       Trademarks

                 Construction Equipment                           Customer Lists

Other assets such as livestock, artwork, and musical instruments also may qualify.

Virtually any business equipment that is depreciated relatively quickly but holds its market value is an excellent candidate for a Section 1031 exchange.  Profitable businesses that are in capital intensive industries, and equipment leasing companies, will find that Section 1031 exchanges can help them to keep their capital invested revenue-producing assets rather than paying a substantial capital gains tax. 

One of the major differences between real property and personal property exchanges is the like-kind requirement.  Like-kind requirements are generally more restrictive in business equipment exchanges than in real property exchanges. 

Business entities themselves do not qualify for a Section 1031 exchange; rather, the assets in the business that will be sold are exchanged for like-kind assets in the business that will be acquired.  For example, one restaurant cannot be exchanged for another.  The owner could exchange the land and improvements of one restaurant for those of another, then exchange the furniture and fixtures of one restaurant for those of another.  As a general rule when businesses are sold and acquired, a 1031 Exchange will help minimize the related gains tax only if there is substantial value in the assets of both businesses that will meet the like-kind test. 

The principals of Beacon Exchange Company have significant experience with personal property exchanges, particularly those involving aircraft and vessels.  We invite you to call and review your contemplated exchange with us.