Cash equivalence refers to any property or asset that is treated as cash for the purposes of the exchange. This means that the property or asset can be used to satisfy the requirement for the taxpayer to identify and acquire replacement property within a certain timeframe as part of a 1031 exchange, just as if they had used cash.
Examples of cash equivalent assets that can be used in a 1031 exchange include:
- Certificates of deposit (CDs)
- Money market accounts
- Treasury bills and notes
- Short-term bonds
- Marketable securities
It’s important to note that not all assets can be used as cash equivalents in a 1031 exchange. For example, stock in a closely held corporation or ownership in a limited liability company (LLC) may not qualify as a cash equivalent. It is important to consult with a qualified tax professional to determine which assets can be used as cash equivalents in a 1031 exchange.