Like-Kind Exchange question

[mwarney]

If a "car" (as defined in pub 463) which has been used in business, and which the standard mileage deduction has been taken, is traded-in for a "heavy SUV" (which does not meet the definition of "car") is this considered a "Like-Kind exchange?"

[Bees Knees]

I'm not sure, but I can guess...

TTB page 6-16 says:

Like-kind property. Properties are of like kind if they are of the
same nature or character, even if they differ in grade or quality.

Page 6-17 says:

• Depreciable tangible personal property can be either like kind
or like class. Like-class properties are properties within the same
General Asset Class or Product Class. Property classified in any
General Asset Class may not be classified within a Product Class.
See IRS Pub. 946 for a list of General Asset Classes. A Product
Class list is available at the North American Industry Classification
System website, www.census.gov/naics.

Pub 946 is your MACRS depreciation Pub. On page 98 it lists Automobiles under Asset Class 00.22 with a 3 year class life, GDS (MACRS) class life of 5 years, and ADS class life of 5 years.

The chart on page 98 does not have a category for SUVs, however page 64 says the Trucks and Vans class includes vehicles such as minivans and sport utility vehicles that are built on a truck chassis.

Asset Class 00.241 is for Light general purpose trucks which include trucks for use over the road (actual weight less than 13,000 pounds). Class life = 4-years, GDS life = 5 years, and ADS = 5 years.

So it appears to me light trucks including vans and SUVs are under a different asset class than automobiles.

Does this mean a trade of a vehicle under Asset Class 00.22 for a vehicle under Asset Class 00.241 does not qualify for a like kind exchange?

No, it only means you cannot say it qualifies as a trade of like class property. You might still argue the trade is a trade of like kind depreciable tangible personal property.

There does not appear to be a long list of examples in Pub 544 that describes like kind property. One example I did find was on page 11 (2006 version) that said:

…the exchange of livestock of different sexes does not qualify

That makes it seem that the like kind issue is harder than the like class issue, since livestock is Asset class 01.1 and does not make a distinction between sexes.

Therefore, my educated guess is that a trade of a car for a truck does not qualify under either like kind or like class rules. I may be wrong. Any other opinions?

[solomon]

From PLR 111387-04:

Accordingly, based on your representations and the above analysis, we conclude that
SUVs and passenger automobiles are like kind property for purposes of section 1031 of
the Code and the regulations thereunder

[Bees Knees]

There you go. I was wrong. Never mind.

[mwarney]

There you go. I was wrong. Never mind.

Thank you for taking time to research this... It does present an interesting argument

[mwarney]

From PLR 111387-04:

Thank you so much for finding this!

[solomon]

Thank you so much for finding this!

Well, Bees worked much harder than I did. The PLR is in My Documents.