Multi Asset 1031 Exchange
Multi asset 1031 exchanges are done when there is a mix of real and personal property such as in a fast food franchise, laundromat or a motel. Typically, real property is comprised of land and improvements along with personal property such as furniture, cooking equipment, fixtures, beds and laundry equipment. Given the replacement property will be similar, both the real and personal property can be exchanged and capital gains and recaptured taxes deferred.
Multi Asset 1031 Identification Rules
The procedure for a multi asset 1031 exchange is to first include in the sales contract an allocation of prices for the real and personal property. Good will is not 1031 eligible. In a 1031 exchange, the replacement property must be identified on a form preferably to the qualified intermediary by the forty fifth calendar day post closing. There are two primary identification rules.
- Three property rule states regardless of value, three properties are identified in such a way that there is no ambiguity. Addresses are typically used.
- Two hundred percent rule states four or more properties are identified given the aggregate value does not exceed 200%. If exceeded, then 95% of what is identified must be acquired.
Personal property incidental to the larger property does not need to be identified if fifteen percent or less than the value of the old or relinquished property.
If the personal property is identified, it must be grouped by either General Asset Classes or North American Industry Classification System. Personal property must be like kind as in furniture for furniture, fixtures for fixtures and cooking equipment for cooking equipment.