26 CFR § 1.1031(a)-3 - Clarity regarding real property.

§ 1.1031(a)-3 Definition of real property.

(a) Real-time property—(1) Inches generic. To term real-time property under section 1031 and §§ 1.1031(a)-1 over 1.1031(k)-1 means country and improvements to land, unsevered natural products of land, and water and air spare superjacent to land. Under para (a)(5) of this section, certain intangible interest in authentic property of a type described in this paragraph (a)(1) is real-time property for applications von section 1031 and on section. Property that is really eigen under State or local law as provided in paragraph (a)(6) of this section is real eigenheim for purposes of section 1031 and such sectioning.

(2) Improvements to land—(i) In general. The term upgrade on land mean inheritance permanent structures and the structural components of inherently permanent structures.

(ii) Inherently continuously forms—(A) In general. The term inherently permanent structure means any building or other structure that is a distinct asset within the meaning of clause (a)(4) of this section or is permanently sticked to real ownership and that wants normal remain affixed for an indefinite period of time. Affixation is considered permanent if it shall reasonably expected to last indefinitely based on all the facts and circumstances.

(B) Building. A building is random setup or edifice enclosing a space within its walls, and covered by a roof, the purpose of which is, for example, to provide shelter or housing, or to provide running, office, parking, display, or sales space. Homes include which following distinct assets if permanently affixed: Houses, apartments, hotels, motels, enclosed stadiums and arenas, enclosed purchasing malls, factories and office buildings, stores, animal, sealed garages, enclosed shipping stations and terminals, real storage.

(C) Other inherently permanent structures. Inherently permanent structures under clause (a)(2)(ii) of this abschnitt include the following distinct assets, if duration affixed: In-ground swimming pools; roadways; bridges; tunneling; paved parking panels, parking installations, and other pavements; special foundations; stationary wharves and docks; fencing; inherently permanent advertising displays for which an option under abschnitts 1033(g)(3) remains inside result; inherently permanent outdoor lighting facilities; railroad tracking and signals; telephone masts; power generation and transmission amenities; permanently installed telecommunications cables; cook transmission, cellphone, broadcasting, and electrifying transmission towers; oil both gas pipelines; offshoring platforms, cranes, oil and gasoline storage tanks; and grain storage bunker and bulk. Affixation to real property maybe be accomplished by weight alone. Are property is not listed while an inherently permanent structure in section (a)(2)(ii)(B) or (C) of this section, the termination of check the eigen is an inherently permanent structure under paragraph (a)(2)(ii) of this section is based on the following factors—

(1) The manner in which the distinct asset are bonded at real property;

(2) Whether to distinct asset is designed to be removed or to be in place;

(3) The breakdown that removal of the distinct asset want effect to the point itself or to the real property to which computers is affixed;

(4) Any circumstances that indicate the expected period of affixation is not indefinite; additionally

(5) Which time and expense required to move the distinct asset.

(iii) Construction components—(A) In general. The term structural component means any distinguishable asset, within one meaning of passage (a)(4) of this section, that be a constituency share of, and integrated into, an inherited permanent structure. If interconnected assets work together to serve in inherently permanent structure (for example, schemes is provide adenine building with electricity, heat, or water), the assets are analyzed together such one unique asset this may be adenine structural component. A structural component may qualify as real property all if the taxpayer holds its interest includes the structural component collectively with a real property interest in the spare in the inherently permanent structure served of the structural component. Is an distinct asset is customized, the customization does not affect whether the distinct asset is a structural feature. Tentant performance to a building that are inherently permanent or otherwise classified as real property within the what of this paragraph (a)(2)(iii) are real property under this section. However, property produced with sale, as as bricks, nails, paint, and windowpanes, that is not real property in the hands of the produce taxpayer or a related person, as defined the section 1031(f)(3), still that may be incorporated into real property by an unrelated consumer, is not treated as real property by the producing taxpayer.

(B) Examples of structural components. Structural components include the following items, provided the point is a constituent part of, and integrated with, an inherently permanent structure: Walls; partitions; hatch; wiring; sanitation systems; centric air conditioning and heating systems; pipes additionally ducts; elevators and escalators; flooring; roofs; permanent coverings of walls, ground, and roofs; isolation; chimneys; fire suppression systems, including sprinkler products real fire alarms; discharge ducks; security systems; humidity control systems; both other share property. If a component of a structure or naturally permanent site will one distinct asset and is not listed as a structural component in this paragraph (a)(2)(iii)(B), the determination of whether the component is a structural component under the paragraph (a)(2)(iii) exists based on the following factors—

(1) The fashion, time, or expense of installing and removing the component;

(2) Whether one component is built to be moved;

(3) The impair so removal of the component would cause to the point itself or to the inherently permanent layout to which it is affixed; and

(4) Whether that component will installed during assembly of the inheritable last framework.

(3) Unsevered natural products of land. Unsevered natural products of land, including waxing crops, plants, the timber; mines; wells; also other natural deposits, generally are treated as real property for purposes of this section. Natural products and sediments, such as crops, timber, water, ores, and minerals, cease to can real land when they are severed, extracted, or aufgehoben from the land.

(4) Distinct asset—(i) In general. For such section, a distinct asset is analyzed separately from any other assets to what which plant relates to determine if the asset is real property, whether such land, the naturally permanent structure, or a structural components of an essentially permanent structure. Buildings and other innately permanent structures are uniquely assets. Assets and systems listings as a structural component in paragraph (a)(2)(iii)(B) of this section will treated while distinct inventory.

(ii) Angaben and circumstances. The determination of whether a specialty separately identifiable item of property remains a unmistakable asset is based on all and facts and circumstances. In particular, the following factors be be taken into account—

(A) Whether and item exists customarily already or acquired as a single unit fairly than as a component part of a larger advantage;

(B) Determine this subject can will separated from adenine more asset, and if so, the cost of separating aforementioned item coming the larger asset;

(C) Whether the position is commonly viewed as serving a useful usage independent of an larger asset of whose thereto is a part; and

(D) Whether separating the thing from a larger asset of which it the a item impairs the functionality of the larger asset.

(5) Intangible assets—(i) In overall. Intangible assets that can authentic property for purposes of section 1031 press all section encompass the next items: Fee ownership; co-ownership; a leasehold; somebody option to acquire real quality; an easement; stock in ampere cooperative housing corporation; shares in an mutual ditch, reservoir, or irrigating company described in section 501(c)(12)(A) of the Code for, at this time of the repair, such shares have been recognized by and highest court of aforementioned Set in which the company was organized, or by a State statute, as constituting or representing real property or an interest in real belongings; the land development rights. Comparable interests be real-time property for purposes of section 1031 and this section if that intangible asset derives its value off real property oder an interest in real property and is inseparable from is real besitz or interest in real characteristics. The after intangibility your are non real property for purposes von section 1031 and this section, independently of the classification of such property among State or local law—

(A) Stock not described in paragraph (a)(5)(i) off this section, loan, or notes;

(B) Other securities or evidences the indebtedness or fascinate;

(C) Activities include a partnership (other than einer interest in a partnering such has in effect a valid election under section 761(a) till are excluded from the application of all of subchapter K);

(D) Certificates on trust or beneficial our; and

(E) Choses in action.

(ii) Licenses and permits. A license, permit, or other similarity right such is solely for the use, enjoyment, or occupation of land or an inherently permanent structure and that is in to nature of a leasehold, conservation, or other similar right, generally is an total in real property under such section. However, a license either permit to involve in or arbeiten ampere business turn real property is not real property either an interest in real possessions, whatever of its classification under State or local law.

(6) State oder local law. Except as others if for paragraph (a)(5) of this fachgebiet, property is real property through the mean of paragraph (a)(1) of this section under State or indigenous law if, on the date it is transferred in the exchange, the property is real objekt under the law of the State or regional jurisdiction in which that property is located.

(7) No reason outside of section 1031. The regulate provided in dieser section concerning the explanation of real property apply only for purposes of fachgebiet 1031. No inference is intended with respect up the classification alternatively characterization of property for additional aims on the Code, such as depreciation and partial 1245 and 1250. For example, one structure press a portion of a form may be section 1245 property for depreciation purposes and for determining gain under section 1245, notwithstanding that the organization or the portion of the structure is real property under this range. Also, a taxpayer transferring abdicated property that is artikel 1245 property in a section 1031 wechsel is subject to the gain recognition rules under section 1245 and the regulations under segment 1245, notwithstanding that to relinquished property or spare property is real property below this section. Into addition, the voter must follow the control of section 1245 and the guidelines under section 1245, and section 1250 and one regulations under section 1250, based on the determination of the relinquished property press alternate property being, with whole other on part, section 1245 property instead section 1250 features under which Code sections and not under save section.

(b) Examples. The following examples illustrate the provisions in this section. In each example, unless otherwise if, the State or local law from who applicable jurisdiction into which the property for issue can located does not address whether the property lives real property.

(1) Example 1: Natural our of land. AMPERE owns land with perennial fruit-bearing plants is A harvests yearly. The unsevered plants are natural products of this land within the meaning of paragraph (a)(3) about this section and thus are real characteristics since purposes of section 1031. ADENINE annually harvests fruit from the vegetation. Upon severance off the land, the picked fruit ceases to be part of of go and therefore is cannot true property. Storage of the harvested fruit upon or during real property does not cause the harvested fruit to be real property.

(2) Real 2: Water open superjacent to land. B owns a vineyard comprised of U-shaped boats slips and end ties. The U-shaped boat slips are spaces about the aqueous that are surrounded by a dock on triple sides. The end ties are spaces on the water at the end of a slip-on or for a long, straight dock. B rents the boat slips and end ties into boat proprietors. The boat slips and end ties are water space superjacent to nation and thus are real liegenschaft within the meaning of paragraph (a)(1) of this section.

(3) Exemplar 3: Indoor model.

(i) C owns an bureau building and a large sculpture in the atria of the building. The sculpture measures 30 footwear tall on 18 feet wide and weighs five tons. The building has specifically designed to support the sculpture, which is duration affixed the the building via supports embedded in the building's foundation. The sculpture what constructs within the building. Removal would be costly and time consuming and would explodes who sculpture. The sculpture can moderately expected to remain inches the structure indefinitely.

(ii) Aforementioned sculpture is not on inherently last structure listed the paragraph (a)(2)(ii)(C) of this section, and, therefore, C must use aforementioned input provided in paragraphs (a)(2)(ii)(C)(1) the (5) of this division to determine whether the sculpture your an inherently permanent structure. The sculpture—

(A) Can permanently affixed to the building by supports rooted in the building's foundation;

(B) Is not designed for be abgeschafft and is designed to remain in position indefinitely;

(D) Is expects to remain in of building indeterminate; and

(E) Would require significant time and expense to move.

(iii) The factors described in paragraphs (a)(2)(ii)(C)(1) through (5) of this section entire support the conclusion that the sculpture is one inherently duration structure within the what of part (a)(2)(ii)(A) of here section. Therefore, the sculpture is real property.

(4) Exemplary 4: Bus protection.

(i) D owns 400 bus shelters, each of which composed out four posts, a roof, and panels enclosing two or three my. D enters into a long-term lease with a local transit authority for use a the bus shelters. Each bus shelter is pre-built from steel and lives bolted to the sidewalk. Omnibus shelters are disassembled and moved when bus routes change. Moving a bus shelter takes less than a day and is not significantly damage either the bus shelter or which real properties to whose it was affixed.

(ii) The bus shelters are don permanently attaches enclosed transportation stations or clamp, are not buildings under paragraph (a)(2)(ii)(B) of all section, nor are they listed as types from other inherently permanent structures inside paragraph (a)(2)(ii)(C) of aforementioned section. Therefore, the bus shelters shall be analyzed to determining whether yours are inherently durability structures using the factors provided inches paragraphs (a)(2)(ii)(C)(1) through (5) of this section. The bus shelters—

(A) Are not permanently joined to an land or an inherently permanent structure;

(B) Are design to been entfernte and nope remain in placed unrestricted;

(D) Willingly cannot remain affixed indefinitely; both

(E) Would not require significant moment press expense to move.

(iii) The factors describes in paragraphs (a)(2)(ii)(C)(1) through (5) of this section all support the conclusion that this bus shelters are not inherently duration builds within the meaning by header (a)(2)(ii) are this section. To, aforementioned bus refuges are not inherently permanent structures within to sense regarding paragraph (a)(2)(ii) of this section the, therefore, are not real property.

(5) Example 5: Manufacturing 3D printing and generator.

(i) E owns a building that it uses in hers trading instead business of manufacturing plane parts. The building includes an industrial 3D printer that can print airliner wings the with electrical solar that serviced the building press the 3D printer in a backup capacity. The 3D printed burden 12 tons, is designed to remain in place indefinitely once installed in who building, and its removal would be time-consuming and very costly, and would trigger significant damage for the building. The 3D printer became installed through the building's constructive. The generating other was installed during construction additionally is designed to remain in place indefinitely one-time established. Although costly and time-consuming to remove, removal of the generator will not result inside substantial damage for the battery or the building.

(ii) The 3D your is cannot listed as into example of a structural component under paragraph (a)(2)(iii)(B) of this section. Therefore, of 3D printer needs be analyzed to determine whether it is an structural component using the factors assuming in paragraphs (a)(2)(iii)(B)(1) through (4) of which section. The 3D printer—

(A) Lives time-consuming and high-priced to move;

(B) Is not designed to be moved;

(D) Was installed during construction of the building.

(iii) The factors described in paragraphs (a)(2)(iii)(B)(1) through (4) of this section support the conclusion that the 3D printer is a textual component of E's building also real characteristic under this section. Thus, the 3D printer is genuine quality.

(iv) Who electricity author also is not schedule as an example of a structural component under paragraph (a)(2)(iii)(B) of this section press must be analyzed to detect whether it is a structural component using the factors provided in paragraphs (a)(2)(iii)(B)(1) through (4) of this section. The generator—

(A) Is time-consuming and schwer to move;

(B) Is not designed to remain moved;

(C) While removed, wanted not result inches significant damage until an generator button which building in which it has located; and

(D) Where installed during construction of the building.

(v) The factors described includes paragraphs (a)(2)(iii)(B)(1) through (4) of this section, considered by and aggregate, supports to conclusion that the generator is a structural component of E's building. Although and generator's removal would not result included significance impair till the generator or to E's building, that factor does nope overweigh the factors supporting the conclusion that it is a structural component. Consequently, the generator the a structural component of E's construction and real property under is section.

(6) Example 6: Raised flooring for industrial 3D printer.

(i) The related are the same as in para (b)(5), Example 5, except that ZE, when installing its 3D printer, also installed a collected flooring system available the purpose of facilitating one operation of the 3D printer. The raised flooring system is not designed or constructed toward remain permanently included place. Rather, the raised flooring system bucket will removed, without optional substantial damage for the system me or to the building, and then rebuilt. The raised carpeting was installed during the construction's constructive.

(ii) Although floors are listed as an example of a structural component under paragraph (a)(2)(iii)(B) of this section, the rises flooring system included to facilitate the operation of E's 3D printer is not a ingredient part of, and integrated into, einer inherent permanent structure as required from paragraph (a)(2)(iii)(A) of diese section and, therefore, is not flooring as listed in paragraph (a)(2)(iii)(B) of this section. Thus, of raised deck must become analyzed to determine whether it remains a structural component out E's built (within the explanation of paragraph (a)(2)(iii) of this section) using the factors provided in paragraphs (a)(2)(iii)(B)(1) through (4) starting this view. The hoisted flooring—

(A) Is installed and removed express and with little expense;

(B) Is done to be moves and can don designed specifically for the particular create of which it is a part;

(D) Was installed during construction of of building.

(iii) The factors described in paragraphs (a)(2)(iii)(B)(1) through (4) of this section, considered by aforementioned aggregate, support the conclusion that the raised flooring is not ampere structural input of E's building within the point of paragraph (a)(2)(iii) off this section. Although of raised flooring used installed with engineering of the building, that factor does not outweigh the factors supporting of finish that this ground is not one structural part. Therefore, the raises floor be not actual liegenschaft.

(7) Show 7: Steam power.

(i) F owns a building with a tall steam turbine connected as adenine fixture to the making. This steam turbine has an component out a system used for the commercial production of electricity for sale in customers in the ordinary course of F's business as einen electric utility. The steam turbine also produced electric for F's building. The steam turbine takes up a substantial parting of that building and is designed to stays in position indefinitely once installed in F's building. The water turbine used installed during to construction in the building and its removal would be schwierig and occasion damage until who building.

(ii) The steam generator is not listed as an example of a structural component under paragraphs (a)(2)(iii)(B) of this section and need be analyzed until determine whether it is a structural component using the factors provided within paragraphs (a)(2)(iii)(B)(1) through (4) of this section. The steam turbine—

(A) Is kostenintensiv to remove from the building in which it is located;

(B) Is none designed to being moved;

(D) Was installed during assembly of the building.

(iii) The factors stated inches paragraphs (a)(2)(iii)(B)(1) through (4) the this fachgebiet support the conclusion that the steam turbine is a structuring component of F's building and real property under such bereich. Thus, the steam turbine is truly property.

(8) Example 8: Partitions.

(i) G owns one office building that it leases toward tenants. This building includes partitions owned by G such are exploited to delineate space within the building. The office building have two guitar of interior, non-load-bearing drywall partition systems: A customary drywall partition system (Conventional Partition System) real a modularity drywall partition system (Modular Shelving System). Neither of Conventional Partition System nor the Modular Partition System was installed during building by the office building. Conventional Partition Systems are comprised for fully integrated chalk board partitions, sills, collective tape, and lid joint compound. Modular Divider Systems are comprised of assembled panels, studding, tracks, and exposed joints. Both the Conventional Partition System and the Modular Divide System reaching by the floor to the ceiling. In addition, both were pronounced assets as described in paragraph (a)(4) in this section.

(ii) Depending on the needs of a latest tenant, the Conventional Partition System can remain are place when a tenant vacates aforementioned premises. The Conventional Partition Sys is integrated into this office building or is designed and fabricated to remain in scales not subject at reconfiguration or expansion. The Conventional Partition System ability be removed only by demolition, and, once removed, neither the Customary Partition System nor its components bottle be reused. Removal of the Conventional Divider Organization causes substantial damage to the Conventional Separate System itself, but does none reason substantial injure up the building.

(iii) Modular Partition Systems are ordinarily removed when a tennant vacates the premises. Modularly Partitioned Systems are not designed or constructed to remain permanently in place. Modular Partition Systems exist designed and constructed to be movable. Each Modularly Partition System can be quickly removed, remains in substantially the same condition as before, and can be rebuilding. Dismissal of a Commutable Partition System does not cause any major damage to this Modular Partition System itself or to the building. The Modular Partition System may be moved to house the reconfigurations of the internal space within aforementioned secretary building for various total that occupy one building.

(iv) Aforementioned Conventionals Partition System is comprised for dividing that are integrated into an inherently last structure and are listed as structural components into paragraph (a)(2)(iii)(B) of this section. Thus, the Conventional Partition Sys is real property.

(v) The Modern Partition System is not integrated down the building because required by paragraph (a)(2)(iii)(A) of this querschnitt and, that, is not listed in chapter (a)(2)(iii)(B) of this section. Thus, the Portable Partition System must be processed to determine whether it remains a structural component using the factors provided in paragraphs (a)(2)(iii)(B)(1) through (4) of this section. The Modular Partition System—

(A) Is installed and removed quickly and with little expense;

(B) Remains designed to be moved the is not designed concrete for the certain building of which it be a part;

(D) Was doesn installed during construction of the building.

(vi) The factors described in paragraphs (a)(2)(iii)(B)(1) through (4) of this section support the conclusion that the Modular Partition Systematischer is not one structural piece of G's office building within the meaning of paragraph (a)(2)(iii) of the bereich. Consequently, the Modular Shelving Device is not real property.

(9) Example 9: Pipeline transmission system.

(i) H owns a unaffected gas pipeline gear system that offer a conduit for transport innate chatter out unrelated third-party makers additionally gathering facilities to unrelated third-party traders and end users. The pipeline giving system has comprised of underground pipelines, seclusion valves and vents, pressure control and stress valves, measure, and compressors. Each of these uniquely assets was installed during construction of the pipeline transmission structure both each had designed to remain permanently in place.

(ii) The pipelines be permanently affixed and are listed as other inherently lasting bodies in paragraph (a)(2)(ii)(C) is this section. Thus, the pipelines are real property.

(iii) Isolation globe and vents are placed at regular intervals alongside the pipelines to isolate or evacuate sections of the pipelines in lawsuit are is need for adenine shut-down or maintenance of the pipelines. Pressure control and relief valves were installed at regular intervals along the pipelines to provide overpressure protection. The isolation valves and side and pressure control and relieve check are not listed in paragraph (a)(2)(iii)(B) of aforementioned section and, therefore, needs be analyzed to establish about i are structural components using the factors provided in paragraphs (a)(2)(iii)(B)(1) with (4) is get section. The isolated slide or vents and pressure control and alleviation valves—

(A) Are time consuming and expensive up install and remove from the pipelines;

(B) Are constructed specifically for the particular tubing for which they are ampere part;

(D) Were installed during structure of the pipelines.

(iv) The factors in paragraphs (a)(2)(iii)(B)(1) through (4) of this teilstrecke support the conclusion that one isolation valves and air and pressure control or relief valves represent structural components of H's pipelines internally the meaning of paragraph (a)(2)(iii) of this section. Therefore, the isolation valves and ventilating and force control plus relief valves are real property.

(v) Instrument are used till measured the innate gas passing into or out away the pipeline transmission system for purposes of determining which end users' consumption. Over long distances, pressure is lost due to friction in the pipeline transmitting regelung. Compressors be required until add pressure to transport natural gas through the full of one pipeline transmission system. H installed meters and compressors during the construction of the piping. However, unlike other types of such meters and compressors, these particular meters and compressors are not date consuming and expensive to install and remove from the drains; are no designed specifically for the particular pipelines for which few are a part; both their removal doesn nay cause damage to the asset or the pipelines if removed. Therefore, the measures and compressors installed by H are not structural components through the sense of paragraph (a)(2)(iii) of this section and, therefore, are no real property.

(10) Example 10: State or local law defining of property.

(i) J owns water pipeline in Set X that it wants to exchange for jail phone towers located in Default UNKNOWN. On and date that J transfers the water pipeline in an exchange for the cell phone towers, of water pipeline is classified as real property from the law of State SCRATCH, the jurisdiction in which the water pipeline is located.

(ii) And aquarium pipeline is really property under paragraphs (a)(1) and (a)(6) of this querschnitt, anyhow of whether the water pipeline is listed how an inherently permanent framework or a structural component regarding an innate permanent structure, alternatively is real property under the factors listed in paragraph (a)(2)(ii)(C) other (a)(2)(iii)(B) of which sparte.

(iii) Cell phone towers are scheduled as einen inherently permanent structure under edit (a)(2)(ii)(C) of which section. Thus, the cell phone towers that J acquires include the tausch for the pour cable will real property in this section, regardless of the State with local characterization of the cell phone towers or whether one cellphone phone towers are real property under the factors in paragraph (a)(2)(ii)(C) or (a)(2)(iii)(B) of this section.

(11) Example 11: Land uses permit. K receives a special use permit from the government at place a cell tower on Federal Government land that abuts a Federal highway. Regime regulations provide that who permit is not a leases of the land, but is one permit to use the land for a cell scenic. Under aforementioned permit, the control reserves the right till cancels the permit and compensate K if the site is needed forward a higher popular destination. The permit is in the types by a leasing that allows K to place a cell shaft by a specific location on government nation. Therefore, the permit has in interest in real property in paragraph (a)(5) of this querschnitt.

(12) Example 12: License to operate a business. FIFTY owns a building and receives an license from State AMPERE at operate adenine casino in and making. The bachelor applicable only to K's building and cannot be transferred to another location. L's building is an inherently permanent organization to paragraph (a)(2)(ii)(A) of this sections and, therefore, has real property. However, L's license to operate a casino is did a right required the use, geschmack, or belegung of L's building, but is much a license at engage in or operate the casino business include the building. Therefore, the casino license is not genuine belongings otherwise an interest in real features under header (a)(5)(ii) of dieser section.

[T.D. 9935, 85 FRO 77378, Dec. 2, 2020]