The Internal Revenue Service (IRS) has ruled the Federal Communication Commission (FCC) television and radio licenses with spectrum rights containing bandwidth differences are like-kind, or eligible for a 1031 exchange, because they were not different in nature and character, but merely grade and quality, per Private Letter Ruling 200532008. Television (TV) stations are assigned licenses with different frequency bandwidths. These licenses are being auctioned by the FCC along with other actions to free up more spectrum for broadband users by incentivizing license holders for certain TV stations to sell their rights in a FCC auction. When sold, the sole underlying property is the assigned frequency of the electromagnetic spectrum known as a FCC TV license. In Technical Assistance Memorandum 200035005 and Private Letter Rulings 8321127 and 8340041, the IRS allowed the exchange of a TV license for a radio license.
“Are you familiar with a 1031 exchange?” is a question that more taxpayers wish their Realtors would ask them when they are considering the sale of a property not held as their primary residence. Is it the Realtor’s responsibility to ask? Not necessarily; however, the Realtor is one, in addition to the taxpayer’s CPA, to be in a unique position to suggest that the taxpayer add a 1031 exchange to their list of topics to consider.
The federal and state capital gain and depreciation recapture tax deferral 1031 exchange strategy is recognized by the Department of the Treasury and enforced by the Internal Revenue Service (IRS). The Internal Revenue 1031 Code applies to real, tangible and intangible personal property held in the productive use of a business or investment. Real property includes land, single family residential rentals, condominiums, commercial property and oil and gas royalties. Any tangible personal property, such as aircraft, furniture, cars, trucks, equipment, railroad cars and locomotives, livestock, artwork, gold and silver bullion, vintage sport cars and collectibles, are eligible for the tax deferral. Intangible property includes franchise rights, TV and Radio licenses, fishing permits and patents to name a few.