TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter O >
PART III > Section 1031

Section 1031. Exchange of property held for productive use or investment

      (2) Exception
        This subsection shall not apply to any exchange of -
          (A) stock in trade or other property held primarily for sale,
          (B) stocks, bonds, or notes,
          (C) other securities or evidences of indebtedness or
        interest,
          (D) interests in a partnership,
          (E) certificates of trust or beneficial interests, or
          (F) choses in action.
      For purposes of this section, an interest in a partnership which
      has in effect a valid election under section 761(a) to be
      excluded from the application of all of subchapter K shall be
      treated as an interest in each of the assets of such partnership
      and not as an interest in a partnership.
      (3) Requirement that property be identified and that exchange be
          completed not more than 180 days after transfer of exchanged
          property
        For purposes of this subsection, any property received by the
      taxpayer shall be treated as property which is not like-kind
      property if -
          (A) such property is not identified as property to be
        received in the exchange on or before the day which is 45 days
        after the date on which the taxpayer transfers the property
        relinquished in the exchange, or
          (B) such property is received after the earlier of -
            (i) the day which is 180 days after the date on which the
          taxpayer transfers the property relinquished in the exchange,
          or
            (ii) the due date (determined with regard to extension) for
          the transferor's return of the tax imposed by this chapter
          for the taxable year in which the transfer of the
          relinquished property occurs.
    (b) Gain from exchanges not solely in kind
      If an exchange would be within the provisions of subsection (a),
    of section 1035(a), of section 1036(a), or of section 1037(a), if
    it were not for the fact that the property received in exchange
    consists not only of property permitted by such provisions to be
    received without the recognition of gain, but also of other
    property or money, then the gain, if any, to the recipient shall be
    recognized, but in an amount not in excess of the sum of such money
    and the fair market value of such other property.
    (c) Loss from exchanges not solely in kind
      If an exchange would be within the provisions of subsection (a),
    of section 1035(a), of section 1036(a), or of section 1037(a), if
    it were not for the fact that the property received in exchange
    consists not only of property permitted by such provisions to be
    received without the recognition of gain or loss, but also of other
    property or money, then no loss from the exchange shall be
    recognized.
    (d) Basis
      If property was acquired on an exchange described in this
    section, section 1035(a), section 1036(a), or section 1037(a), then
    the basis shall be the same as that of the property exchanged,
    decreased in the amount of any money received by the taxpayer and
    increased in the amount of gain or decreased in the amount of loss
    to the taxpayer that was recognized on such exchange.  If the
    property so acquired consisted in part of the type of property
    permitted by this section, section 1035(a), section 1036(a), or
    section 1037(a), to be received without the recognition of gain or
    loss, and in part of other property, the basis provided in this
    subsection shall be allocated between the properties (other than
    money) received, and for the purpose of the allocation there shall
    be assigned to such other property an amount equivalent to its fair
    market value at the date of the exchange.  For purposes of this
    section, section 1035(a), and section 1036(a), where as part of the
    consideration to the taxpayer another party to the exchange assumed
    (as determined under section 357(d)) a liability of the taxpayer,
    such assumption shall be considered as money received by the
    taxpayer on the exchange.
    (e) Exchanges of livestock of different sexes
      For purposes of this section, livestock of different sexes are
    not property of a like kind.
    (f) Special rules for exchanges between related persons
      (1) In general
        If -
          (A) a taxpayer exchanges property with a related person,
          (B) there is nonrecognition of gain or loss to the taxpayer
        under this section with respect to the exchange of such
        property (determined without regard to this subsection), and
          (C) before the date 2 years after the date of the last
        transfer which was part of such exchange -
            (i) the related person disposes of such property, or
            (ii) the taxpayer disposes of the property received in the
          exchange from the related person which was of like kind to
          the property transferred by the taxpayer,
      there shall be no nonrecognition of gain or loss under this
      section to the taxpayer with respect to such exchange; except
      that any gain or loss recognized by the taxpayer by reason of
      this subsection shall be taken into account as of the date on
      which the disposition referred to in subparagraph (C) occurs.
      (2) Certain dispositions not taken into account
        For purposes of paragraph (1)(C), there shall not be taken into
      account any disposition -
          (A) after the earlier of the death of the taxpayer or the
        death of the related person,
          (B) in a compulsory or involuntary conversion (within the
        meaning of section 1033) if the exchange occurred before the
        threat or imminence of such conversion, or
          (C) with respect to which it is established to the
        satisfaction of the Secretary that neither the exchange nor
        such disposition had as one of its principal purposes the
        avoidance of Federal income tax.
      (3) Related person
        For purposes of this subsection, the term ''related person''
      means any person bearing a relationship to the taxpayer described
      in section 267(b) or 707(b)(1).
      (4) Treatment of certain transactions
        This section shall not apply to any exchange which is part of a
      transaction (or series of transactions) structured to avoid the
      purposes of this subsection.
    (g) Special rule where substantial diminution of risk
      (1) In general
        If paragraph (2) applies to any property for any period, the
      running of the period set forth in subsection (f)(1)(C) with
      respect to such property shall be suspended during such period.
      (2) Property to which subsection applies
        This paragraph shall apply to any property for any period
      during which the holder's risk of loss with respect to the
      property is substantially diminished by -
          (A) the holding of a put with respect to such property,
          (B) the holding by another person of a right to acquire such
        property, or
          (C) a short sale or any other transaction.
    (h) Special rules for foreign real and personal property
      For purposes of this section -
      (1) Real property
        Real property located in the United States and real property
      located outside the United States are not property of a like
      kind.
      (2) Personal property
        (A) In general
          Personal property used predominantly within the United States
        and personal property used predominantly outside the United
        States are not property of a like kind.
        (B) Predominant use
          Except as provided in subparagraphs (FOOTNOTE 1) (C) and (D),
        the predominant use of any property shall be determined based
        on - (FOOTNOTE 1) So in original.
            (i) in the case of the property relinquished in the
          exchange, the 2-year period ending on the date of such
          relinquishment, and
            (ii) in the case of the property acquired in the exchange,
          the 2-year period beginning on the date of such acquisition.
        (C) Property held for less than 2 years
          Except in the case of an exchange which is part of a
        transaction (or series of transactions) structured to avoid the
        purposes of this subsection -
            (i) only the periods the property was held by the person
          relinquishing the property (or any related person) shall be
          taken into account under subparagraph (B)(i), and
            (ii) only the periods the property was held by the person
          acquiring the property (or any related person) shall be taken
          into account under subparagraph (B)(ii).
        (D) Special rule for certain property
          Property described in any subparagraph of section 168(g)(4)
        shall be treated as used predominantly in the United States.