Livestock Eligible for 1031 Exchange
Posted by Andy Gustafson on Thu, Jun 03, 2010
Contrary to the view that only real estate is eligible for 1031 tax deferred exchanges, think again. Capital gain triggered on the sale of livestock can be deferred just like land or a shopping center by replacing with like-kind livestock.
Animals must be held for investment or in a business such as for breeding, draft, dairy or sporting purposes (productive Section 1231) and not as inventory or held for resale. Specifically, horses, cattle, hogs, mules, donkeys, sheep, goats, fur-bearing animals and other mammals are eligible for 1031 exchanges and the deferral of capital gain taxes when replaced with like kind livestock. Animals not eligible for a 1031 exchange include chickens, turkeys, pigeons, other birds, fish, frogs and reptiles.
Like-Kind Exchange
Livestock must be replaced with the same sex. Livestock of different sexes are not like kind property. Consequently, same sex livestock not held as inventory or for resale as in a regular sale such as breeding stock may be exchanged if they are like kind. Currently, there is no bright light test or guidance as to what is considered like kind livestock. Some experts view a grade beef cow is like kind to a purebred registered beef cow in that they differ only in quality or grade. On the other hand, a dairy cow is most likely not like kind to a beef cow because the two are different types of livestock. Further examples of like-kind livestock exchanges include:
- three-quarter blood heifers for one-half blood heifers;
- mixed cattle for steer calves;
- cows for yearling.
The exchange follows the same 1031 exchange guidelines and requirements.
