Less than 5% of §1031 exchanges currently involve personal property, yet the potential for tax savings is enormous. Gains from personal property sales are estimated at over $100 billion each year.

1. What Personal Property Qualifies?

You would expect that big ticket items such as corporate jets, commercial aircraft, and ships to qualify, but so do smaller ticket items such as cars, trucks, construction and agricultural equipment and computer equipment. Also, intangible personal property such as broadcast licenses, franchise licenses, and copyrights of books, music, and software do. Don’t forget that livestock, race horses, gold coins, paintings, and other collectibles may also qualify.

2. What Causes the Taxable Gain?

The taxable gain is primarily due to §1245 depreciation recapture that is taxed at ordinary income rates and less likely due to the combination of depreciation and appreciation as found in real estate.

3. Can You Exchange a Business?

Yes and No. When selling a business, owners may exchange individual assets of the business in a multi-asset exchange, but goodwill, going concern value, or inventory are not considered like-kind. You can never exchange one restaurant business for another restaurant business.

4. What are the Usual Difficulties?

The normal problems that have to be worked out include what asset class, product class or specific matches can be made, along with how to account for boot (i.e. cash received) and debt relief.

5. How is it similar to Real Estate Exchanges?

• You have 45 days to identify a list of new properties to purchase.
• You have 180 days to close on one or more properties from your list.
• You cannot have actual or constructive control of any of the proceeds. All money is to be held by an exchange coordinator.
• The new titleholder must be the same as the old titleholder.
• You must reinvest all cash proceeds, purchase an asset of equal or greater value, and replace the debt relief in order to defer taxation on the gains.