P roperty specifically excluded from non-recognition treatment includes stocks, securities, bonds, notes, certificates of trust or beneficial interests, unless it is a part of a corporate reorganization. Exchanges of partnership interests are specifically excluded, although the partnership as an entity can exchange real estate it owns for other like kind real estate.

Both the relinquished property and the replacement property must be held in the taxpayer’s trade or business or for investment. Property that does not meet these requirements does not qualify for non-recognition treatment under §1031. Personal use property will not qualify for non-recognition, such as a personal residence or possibly a vacation home. Property held primarily for sale by an individual (ie, a person who buys property with the intent of fixing it up to make a profit) does not qualify. Property that is held for less than one year generally does not qualify.

Ultimately, it is the taxpayer’s purpose for holding the property that is at issue. There are several controlling factors that have been identified in trying to determine the taxpayer’s purpose for holding the property.

Among those, the most crucial controlling factors are: