Exchange of property held for productive use or investment
(a) Nonrecognition of gain or loss from exchanges solely in kind
(1) In general
No gain or loss shall be recognized on the exchange of property held for
productive use in a trade or business or for investment if such property is
exchanged solely for property of like kind which isto be held either for
productive use in a trade or business or forinvestment.
(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 hasin effect
a valid election under section 761(a) to be excluded fromthe 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 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 a liability of the taxpayer or acquired from the taxpayer property
subject to a liability, such assumption or acquisition (in the amount of the
liability) 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 suchpproperty, or
(C) a short sale or any other transaction.
(h) Special rule for foreign real property
For purposes of this section, real property located in the United States and
real property located outside the United States are not property of a like kind.
