Monday, August 11, 2008 at 08:11PM | Staff 1031 Exchange of An Easement for Investment Property
This is actually a fairly common question. Can an owner of an easement sell the easement and complete a 1031 exchange on that easement? The answer is generally, yes, as long as the easement is held for investment or used in a trade or business.
An easement is generally considered to be an interest in real property. The easement provides the owner of the easement with the right to use, but not possess, the real property. An easement given to your local telephone, cable or electric or gas company ("utility easement") permitting the utility company to place telephone poles or underground cabling on the real property is a good example of an easement.
The real property owner has partially decreased the fair market value of their property since the owner has granted or sold an easement and given up a right of ownership or limited their right of ownership in the real property by granting or selling the easement to the buyer. The buyer of the easement now has a "partial" ownership interest or right of use in the real property.
The sale or other disposition of an easement can qualify for 1031 exchange treatment as long as the state in which the easement is located defines the easement to be real property under its real property laws. Revenue Ruling 72-549 has already ruled that an easement is "like kind" with other real estate and will qualify for 1031 exchange treatment.
