Generally, if a taxpayer exchanges business or investment property solely for business or investment property of a like or similar kind, they don’t need to recognize a gain or loss.
However, TCJA now limits like-kind exchange treatment only to certain exchanges of real property and not to exchanges of personal or intangible property. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange. To qualify as a like-kind exchange, the taxpayer must hold the real property for productive use in a trade or business or for investment.
A transition rule in the TCJA provides that Section 1031 applies to a qualifying exchange of personal or intangible property if the taxpayer disposed of the exchanged property on or before December 31, 2017 or received replacement property on or before that date.
Thus, effective January 1, 2018, exchanges of machinery, equipment, vehicles, artwork, collectibles, patents and other intellectual property and intangible business assets generally do not qualify for non-recognition of gain or loss as like-kind exchanges. However, certain exchanges of mutual ditch, reservoir or irrigation stock are still eligible for non-recognition of gain or loss as like-kind exchanges.
For more information, see Like-Kind Exchanges – Real Estate Tax Tips on IRS.gov.