Have you Taken Accelerated Deprecation on Your Agricultural Building?

Like-kind exchanges (post 2017) are limited to only real property. You can have both I.R.C. §1245 real property components (inherently permanent structures and the structural components of inherently permanent structures) and I.R.C. §1250 real property components (e.g. raw land).

3 Categories of Property Components

Under the new regulations, three categories of property components may qualify as real property for Section 1031:

  1. Property specifically listed as real property in the IRS regulations

  2. Property classified as real property under state or local law

  3. Property that satisfies an IRS facts-and-circumstances test

Sometimes there are agricultural structures that are designated as I.R.C. §1245 property (shorter depreciation life) such as irrigation systems, drainage tile, and other specialty improvements to farm real estate. If property with an I.R.C. §1245 depreciation recapture attribute is sold in an I.R.C. §1031 exchange, the I.R.C. §1245 depreciation recapture must be recognized to the extent that the new replacement property has insufficient I.R.C. §1245 property.

You can match up I.R.C. §1245 relinquished real property with new I.R.C. §1245 replacement real property, it just takes a little more planning and persistence in a 1031 exchange.

The IRS regulations broadly construe like-kind real property to include all business and investment real property in the United States, whether improved or unimproved. Reg. Section 1.1031(a)-3(a)(4).

The term inherently permanent structure means any “building.” The term “buildings” include the following distinct assets if permanently affixed: houses, apartments, hotels, motels, enclosed stadiums and arenas, enclosed shopping malls, factories and office buildings, warehouses, barns, enclosed garages, enclosed transportation stations and terminals, and stores. Also the list of “other inherently permanent structures” is extensive and broad and includes “grain storage bins and silos”.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

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Defer the tax. MAXIMIZE your gain.