In terms of a 1031 exchange, which refers to Section 1031 of the U.S. Internal Revenue Code, business assets typically means assets or properties held for use in a trade or business or for investment. A 1031 exchange allows an investor to defer capital gains taxes on the exchange of like-kind properties.
Business assets in a 1031 exchange can include:
- Real Estate: This is the most common asset involved in 1031 exchanges. It includes commercial properties, rental properties, and land held for investment.
- Tangible Personal Property: This may include vehicles, equipment, or machinery used in a business, provided they are like-kind.
- Intangible Personal Property: This can consist of patents, copyrights, trademarks, and other intellectual properties, though these are less common and have stricter rules for what constitutes like-kind.
The key requirement for these assets is that they must be held for productive use in a trade or business or for investment, and not primarily for sale or personal use. The like-kind nature of exchanged assets is broadly interpreted for real estate but is much more narrowly defined for personal property.
To qualify for a 1031 exchange, both the property being sold (relinquished property) and the property being acquired (replacement property) must meet certain criteria, including being of like-kind. The exchange must also be structured in a way that complies with the rules set out in Section 1031, which usually involves the use of a qualified intermediary and adherence to specific timeframes for identifying and closing on the new property.