Our company had two transactions this year. In one transaction, our company purchased an unimproved parcel of land from an individual in March 2013. In the second transaction, our company sold another unimproved parcel of land to a different individual in May of this year and generated a profit on the sale. The second parcel of land was originally purchased by an unrelated company in 2012. Is transaction 1 and transaction 2 a like-kind transaction? Can we claim a 1031 transaction for the purchase and subsequent sale?

ANSWER

The BIDaWIZ Team's Answer:

IRC 1031 allows unimproved land to be exchanged for unimproved land. However, the fact pattern you provide suggests that unimproved land 1 was purchased prior to selling unimproved land 2. Typically, you need to sell the property first and reinvest those proceeds directly into the new property for 1031 treatment. However, there is an exception called a reverse exchange. IRS Rev Proclamation 2000-37 allows for a taxpayer to purchase the replacement property in advance if it is held with a third party qualified exchange accommodation party. The taxpayer would still be granted 1031 treatment if this arrangement was in place.