Finance

In a 1031 tax-deferred exchange in Utah, the 'like-kind' requirement means:

AThe replacement property must be identical in use and size

BBoth the relinquished and replacement properties must be real property held for investment or productive use in trade or business✓ Correct

CThe exchange must involve properties in the same state

DOnly residential properties can be exchanged for residential properties

Explanation

Under IRC Section 1031, 'like-kind' for real property means any real property held for investment or use in a trade or business. A Utah apartment building can be exchanged for commercial land, a ski condo for an office building—as long as both are investment/business properties.

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Key Terms to Know

1031 Exchange

A tax-deferred exchange allowing investors to sell one investment property and reinvest proceeds in a like-kind property while deferring capital gains taxes.

Amortization

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.

Loan-to-Value Ratio (LTV)

The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.