When a taxpayer sells property outright, the sale is often subject to the payment of capital gains taxes. To avoid the payment of capital gains taxes, a taxpayer may choose to enter into a Section 1031 Exchange instead of a traditional sale. If the transaction qualifies for Section 1031 treatment any applicable capital gains tax will be deferred. The basic premise of a Section 1031 Exchange is that the taxpayer will relinquish a property and replace it with another property of “like-kind”. While there are a number of other criteria that must be met for a transaction to qualify as a Section 1031 Exchange, the “like-kind” criterion itself has been the subject of much debate over the years. For example, can a leasehold interest exchanged for a fee interest ever be considered a “like-kind” exchange?
