An exchange of property, like a sale, generally results in the current recognition of gain or loss. Section 1031(a) provides an exception to this general rule. Under Section 1031(a), no gain or loss is recognized if property held for productive use in a trade or business or for investment is exchanged solely for property of like-kind that is to be held either for productive use in a trade or business or for investment. Section 1031(a) specifically does not apply to exchanges of stock in trade or other property held primarily for sale, stocks, bonds, notes, other securities or evidences of indebtedness or interest, certificates of trust or beneficial interest, choses in action, or interests in a partnership.
Section 1031(a)(3) was added by Section 77 of the Tax Reform Act of 1984. Section 1031(a)(3) provides that any property received by the taxpayer in a deferred exchange is treated as property which is not likekind property if (a) such property is not identified as property to be received in the exchange on or before the day which is 45 days after the date on which the taxpayer transfers the property relinquished in the exchange, or (b) such property is received after the earlier of (1) the day which is 180 days after the date on which the taxpayer transfers the property relinquished in the exchange, or (2) the due date (including extensions) of the taxpayer's tax return for the taxable year in which the transfer of the relinquished property occurs.