Type of property requirement. Only a transfer of property is subject to like-kind exchange treatment; provision of services is not. Neither the property relinquished nor the property received may be a type of property expressly excluded from the statute .

Qualified use requirement. Both the property relinquished and the property received in the exchange must be held by the taxpayer for productive use in a trade or business or for investment at the time of the exchange

Like-kind requirement. The property received in the exchange transaction must be of like-kind to the relinquished property.

Exchange requirement. The transaction must be an exchange of relinquished property for replacement property, not a sale of the relinquished property followed or preceded by a purchase of another property.

Time requirement. If the exchange is nonsimultaneous, the replacement property must be
(a) identified no later than 45 days after the date on which the relinquished property is transferred and
(b) received by the taxpayer on or before the earlier of

(1) 180 days after the date on which the taxpayer transfers the relinquished property or
(2) the due date, including any allowable extensions, for the taxpayer's tax return for the taxable year in which the relinquished property is transferred.

Thus, two basic calculations must always be made to evaluate the overall tax consequences of an exchange:

• Realized gain must be computed to find the amount of gain from disposition of the taxpayer's relinquished property that is potentially subject to tax and
• Recognized gain must be computed to ascertain whether any of the realized gain will he taxed.
Losses are not recognized in a like-kind exchange under §1031 even if money or other nonqualifying property (i.e., property that is either not like-kind, not held for investment or use in a trade or business, or is statutorily excluded) is received in the exchange. If, however, a taxpayer transfers nonqualifying property in the exchange, in addition to qualifying property, losses may be recognized as if the nonqualifying property had been sold.

NOTE* In reviewing the gain realization and recognition rules established by Treasury Regulations, Revenue Rulings, and court decisions, .the attorney should remember that a two-party ex-change paradigm often serves as the basis for analysis. Conforming application of these rules to fit .modern multiparty ex-changes, most of which are deferred, is thus often necessary.

Although IRC §1031 generally defers the recognition of gain or loss on the exchange of like-kind property, a taxpayer who receives money or other property in addition to the like-kind property recognizes gain, but not loss, to the extent of the sum of the money and the fair market value of the other property received, Losses are not recognized even if the taxpayer receives money or other non-like-kind property in the exchange. If however, a taxpayer gives up non-like-kind property (other than cash) together with the like-kind property, loss is recognized to the extent that the adjusted basis of the non-like-kind property transferred exceeds its fair market value (just as loss would be recognized if the non-like-kind property were sold).