Can an Easement Be Exchanged for Real Property?
IRC Section 1031 does not limit “like-kind exchange” property to certain types of real estate. The range of types of real estate which can be exchanged is extremely broad. The term refers to the nature or character of the property, rather than its grade or quality. In many cases, an easement can be exchanged for a fee interest.
Easements: Qualifying Real Property
Real property must be exchanged for “like-kind” real property. Any real estate held for productive use in a trade or business or for investment-whether improved or unimproved-is considered “like-kind.” Like-kind exchange examples:
- Improved property
- Leasehold with 30+ years to run
- Vacant land
- Small retail center
- Commercial property
- Single-family rental
- An apartment
- Industrial property
- Rental resort property
What About Easements?
Although it is important to look to the treatment of easements under the applicable state laws, in many cases an easement is considered “like-kind” to any other “like-kind” real property held for productive use in a trade or business or for investment.
Qualifying Exchanges of Easements
An agricultural conservation easement in perpetuity in a farm found to be real property, for a fee simple interest in real property.
– IRS Letter Ruling 9232030
An exchange of agricultural easements over two farms for fee-simple titles in a different farm.
– IRS Letter Ruling 9851039
A perpetual conservation easement encumbering real property for the fee of simple interest in farmland, ranch land, or commercial property.
– IRS Letter Ruling 9601046
A scenic conservation easement found to be real property under state law, for a fee simple interest in timber, farmland, or ranch land.
– IRS Letter Ruling 9621012
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