In the realm of 1031 exchange transactions, oftentimes the real property being acquired may come bundled with minor personal items like furniture, fixtures, and equipment, which are referred to as incidental property.
2 Conditions for Incidental Personal Property
For personal property to be considered incidental to a larger real property item, two conditions must be met:
it is typically transferred alongside the larger item in standard commercial transactions, and
the total fair market value of all incidental property does not exceed 15% of the larger property's fair market value.
However, incidental property can present challenges in 1031 exchanges. One issue is how to properly identify replacement properties when they include such personal items. Another concern arises when acquiring identified replacement properties that also have incidental property included in the transaction.
The 15% Exception
The 15% exception for incidental personal property applies only to replacement property purchased, not to relinquished property sold in a like-kind exchange. To handle personal property proceeds, it's recommended that the seller retains those funds and assigns rights related to real property to the Qualified Intermediary. A sub-allocation of real property purchase price may also be necessary for tax depreciation considerations.
Get in Touch with a Qualified Intermediary
Jumpstart your 1031 exchange today by getting in touch with a qualified intermediary from CPEC1031, LLC. We have been in the 1031 exchange industry for more than twenty years and can guide your transaction through the 1031 exchange period from start to finish. Let us help you defer your capital gains tax burden when selling investment real estate. You can find us at our Minneapolis office and set up a time to chat with one of our team members.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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