Amy asked:


-S corporation wants to exchange commercial real estate in Ft Collins, Colorado for Water right from a unrelated third party. Both are worth 500,000. Can this qualify as a 1031 exchange?

Clarence

No Responses to “Can water rights be exchanged under a section 1031 like-kind exchange?”

1. pro1031 on December 18th, 2010 9:08 am

   As a 1031 Accommodator with First American Exchange Company, one of the country’s largest 1031 Accommodators, let me answer your question more fully.

   The big question here is does the State of Colorado recognize water rights as real property? If so, then you should be able to complete this exchange. You need to consult with a professional in Colorado (attorney, title officer) and see if water rights are deemed as real property. If the state of Colorado recognizes water rights as real propery, you still need to speak with your tax professional to make sure they agree. This is always the most important step of a 1031 Exchange - a consultation with your tax professional.

   Other than that, remember some of the basics about the 1031. It allows an investor to sell an investment property and purchase replacement investment property and you can defer the capital gain liability. This is for Real Property only. Stock is not considered real property or “like-kind” property per the 1031 code. Per the 1031 Code, you must buy and sell “property held for productive use in a trade or business or for investment” (IRC section 1031(a)(1)). This means that you can buy and sell any type of real property held for these purposes. Sell a commercial building and purchase raw land. Sell a rental home and purchase a grocery store (the building and the land, not the business). Lastly, you need to purchase property of equal or greater value for a satisfactory exchange.

   As an Accommodator registered in the State of Nevada, I help facilitate 1031 Exchanges in all 50 states. Nevada is the only state that requires registration of an Accommodator. In the other 49 states, anyone can become an Accommodator without bonding or any background checks. As an Accommodator with First American Exchange Company, a wholly-owned subsidiary of First American Title Company, your funds are guaranteed by First American Corporation, the largest title company in the industry, with a history dating back to 1889.

   I hope this answers your question. If not, or if you have more questions, or if you would like more information, please contact me at or go to my company’s website at.

   Always remember, you should consult with your tax professional or attorney before ever considering a 1031 Exchange.