Personal Property Exchanges

Internal Revenue Code Section 1031 allows investors to exchange either like-kind real or personal property for other like-kind real or personal property. Although the rules for like-kind real estate are fairly broad, the rules to exchange personal property for like-kind or like-class specify that an Exchangor can only receive tax deferral if the sale of personal property is exchanged for the purchase of personal property that falls within the same Product Class or General Asset Class. Product and General Asset Classes, as described in the North American Industry Classification System (NAICS), were developed for use in the classification of establishments and products by the type of activity for which they are engaged. Depreciable tangible personal property is exchanged for property of like-kind if it is exchanged for property of like-class.

Personal Property General Asset Classes

1. Office furniture, fixtures, and equipment;
2. Information systems (computers);
3. Data handling equipment, except computers;
4. Airplanes and helicopters;
5. Automobiles and taxis;
6. Buses;
7. Light general-purpose trucks;
8. Heavy general-purpose trucks;
9. Railroad cars and locomotives;
10. Tractor units for use over-the-road;
11. Trailers and trailer-mounted containers;
12. Vessels, barges, tugs, and similar water transportation equipment;
13. Industrial steam and electric generation and distribution systems;
14. Livestock.

Please note that certain items of personal property such as “goodwill”, “covenants not to compete”, and “inventory” do not qualify for 1031 tax-deferred treatment.