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.
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:
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.
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 title in a different farm.
– IRS Letter Ruling 9851039
A perpetual conservation easement encumbering real property for the fee simple interest in farm land, 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, farm land, or ranch land.
– IRS Letter Ruling 9621012
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