Can You Do a 1031 Exchange on Personal Property?

A 1031 exchange on personal property is no longer allowed under federal tax law. Since January 1, 2018, Section 1031 of the Internal Revenue Code has applied only to real property held for business or investment use.¹ Equipment, vehicles, aircraft, artwork, livestock, patents, and every other movable or intangible asset now produces taxable gain the moment you sell it. There is no deferral option through a like-kind exchange, and the change is permanent, not a temporary provision waiting to expire.

What the 2018 Change Actually Did

Before 2018, Section 1031 was broad. Businesses routinely swapped aircraft for aircraft, heavy machinery for machinery, and even patents for patents without recognizing gain. The Tax Cuts and Jobs Act of 2017 stripped all of that out. The statute now defers gain only on the exchange of “real property held for productive use in a trade or business or for investment” when swapped for like-kind real property.² Personal property of any kind falls outside that language.

A short transition rule preserved exchanges of personal property if the taxpayer either disposed of the old asset or received the replacement on or before December 31, 2017.¹ That window closed years ago. Any exchange of personal property completed since then is treated as an ordinary taxable sale, regardless of how it was structured or whether the parties called it an exchange.

What You Owe When You Sell Business Equipment or Other Personal Property

Without a Section 1031 deferral, the gain on personal property gets recognized in the year of sale. The rate depends on the asset, your holding period, and how much depreciation you’ve already claimed against it.

Most business equipment has been depreciated, sometimes to zero. The portion of your gain attributable to prior depreciation deductions is recaptured as ordinary income, taxed at individual rates that reach 37% at the top bracket. Corporations pay a flat 21% on all income, capital gain or otherwise.

Any long-term capital gain above the depreciation recapture amount is taxed at 0%, 15%, or 20% for individuals, depending on taxable income.³ High earners owe an additional 3.8% net investment income tax if modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married filing jointly.⁴ Combined, the federal bill on a gain from selling depreciated equipment can land in the 30% range for a high-income individual. That is roughly the amount businesses used to defer indefinitely by rolling one asset into the next.

The Practical Workaround: Expense the Replacement

The tax code still contains two tools that soften the loss of personal property exchanges. Neither defers gain on a sale the way a 1031 exchange did. Both let you front-load deductions on the replacement purchase, so the tax benefit shows up in the same year the sale gain does.

Section 179 Expensing

Section 179 lets you deduct the full purchase price of qualifying business equipment in the year you buy it, instead of spreading the deduction over the asset’s useful life. For 2026, the deduction limit is approximately $2.56 million, with a phase-out beginning around $4.09 million in total equipment purchases. Vehicles, machinery, computers, and office furniture all qualify. For most small and midsize businesses replacing equipment they’ve just sold, this is the closest thing to a 1031-style benefit still available for personal property.

Bonus Depreciation

Bonus depreciation is phasing down under the schedule set by the 2017 tax law. After allowing 100% first-year depreciation through 2022, the rate dropped 20 points a year: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. It reaches zero in 2027 unless Congress acts. At 20%, bonus depreciation still provides some acceleration, but Section 179 is the stronger tool for most equipment buyers now.

How the Offset Works in Practice

Neither provision helps when you sell an asset at a gain. They help when you buy. Sell a fully depreciated truck for $30,000, and the $30,000 gain is taxable. Buy a $30,000 replacement truck in the same year and expense it under Section 179, and the deduction offsets the gain dollar for dollar. The net cash tax result can look a lot like the old personal property exchange, just built out of different pieces. Timing matters: the replacement has to be placed in service in the same tax year for the offset to land against the sale gain.

What Section 1031 Still Covers

If the reason you’re asking about personal property is that you own a mixed portfolio, the “no” only applies to the personal property side. Real property held for business or investment still qualifies for a 1031 exchange, and the IRS reads “like-kind” generously within that category. You can exchange a vacant lot for an apartment complex, a strip mall for farmland, or an office building for a warehouse.¹

Real property under Section 1031 means land, buildings, and improvements permanently attached to land. Treasury regulations reach inherently permanent structures and their structural components: houses, apartment buildings, warehouses, fences, parking lots, roads, cell towers, pipelines, and in-ground swimming pools. The test is whether the structure is permanently affixed and would ordinarily remain in place indefinitely.

Two limits sit inside the real-property category that are worth knowing before you assume a deal qualifies:

U.S. real property and foreign real property are not like-kind to each other. A rental house in Florida cannot be exchanged for a rental apartment in Mexico. Both properties must be located within the United States.²
Property held primarily for sale is excluded. A developer who buys land, subdivides it, and sells lots is holding inventory, not investment property, and the statute expressly disqualifies that use.²

Personal-use real estate is also out. A primary residence, a lake house your family uses every summer, or a condo you never rent are not held for business or investment, so they don’t qualify even though they are real property.² Use matters as much as property type.

Personal Property Bundled Into a Real Estate Deal

Real estate transactions routinely include personal property: appliances, window treatments, laundry machines in a rental building. Those items are not real property and do not qualify for 1031 treatment. If you sell a rental house with $8,000 of appliances included in the price, that $8,000 is taxable boot, even though the building itself is exchanged tax-deferred.¹

Treasury regulations do offer one narrow simplification. If the personal property’s fair market value does not exceed 15% of the associated real property’s value, and the items are the type ordinarily transferred with such property, you don’t have to separately identify them during the 45-day identification window.⁵ This is a paperwork simplification only. The items are still personal property, and you still owe tax on their value. The 2018 restriction did not carve out any exception for personal property that happens to travel with real estate.

The Short Version

A like-kind exchange under Section 1031 is not available for any personal property, and hasn’t been since the start of 2018. Selling equipment, vehicles, aircraft, or intangibles produces a taxable gain in the year of sale, with depreciation recapture at ordinary income rates and any excess treated as capital gain. The remaining strategy for personal property is on the buy side: Section 179 expensing, and to a diminishing degree bonus depreciation, let you deduct a replacement purchase against the same year’s income. Section 1031 itself is now a real-estate provision, subject to its own limits on foreign property, dealer-held inventory, and personal-use homes.

1
Internal Revenue Service. Like-Kind Exchanges – Real Estate Tax Tips
2
Office of the Law Revision Counsel. 26 USC 1031 – Exchange of Real Property Held for Productive Use in Trade or Business or for Investment
3
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
4
Internal Revenue Service. Topic No. 559, Net Investment Income Tax
5
eCFR. 26 CFR 1.1031(k)-1 – Treatment of Deferred Exchanges