27 Jan If I sell a co-op in New Jersey, can I do a 1031 exchange?

Q. If I sell a co-op in New Jersey, can I do a 1031 exchange?
— Owner

A. A 1031 exchange can allow you to defer taxes when you sell a rental or investment property if you buy a substantially similar property.

The Tax Cuts & Jobs Act of 2018 implemented many changes to the 1031 exchange arena, said Steven Gallo, a certified public accountant and personal financial specialist with U.S. Financial Services in Fairfield.

The most important change is that it eliminated personal property exchanges from eligibility.

“This change brought rise to the question of whether co-ops would qualify under the new provisions since when purchasing a co-op, an individual is purchasing shares of stock in an entity that owns the real estate,” Gallo said.

Stock is normally considered to be personal property and therefore by definition, would be excluded under the changes enacted by the Tax Cuts & Jobs Act of 2018.

However, Gallo said, the IRS has subsequently issued rulings declaring co-ops as eligible for 1031 exchange, stating they are to be treated as real estate and not personal property.

“So yes, your co-op may qualify for 1031 exchange providing you meet all the other requirements, most importantly that the co-op was held as investment or business property,” Gallo said. “If the co-op was used as your primary residence, it fails, by definition, to qualify for 1031 exchange treatment.”

Email your questions to .

This story was originally published on Jan. 27, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.