Sec 1031 question

[apontow]

Taxpayer structured a deferred Sec 1031 transaction selling a permanent wetlands easement in farm land to USDA through a qualified intermediary (QI) for $400,000 and acquiring replacement farm land through the QI for $300,000. All required dates for the transaction were met. The tax basis in the original acreage was $40,000. There was no mortgage on this property. Taxpayer will retain ownership of this acreage, subject to the wetlands easement restrictions, which effectively removes it from active farm use. My understanding is that the taxpayer would have a recognized gain of $100,00, representing the cash not reinvested in the new farm property. The $40,000 of tax basis would carry over to the new acreage acquired. Correct? If this is correct, how does this flow through on Part III of the Form 8824? The line instructions are very confusing when trying to apply the above factual situation. Has anyone dealt with a similar situation? I would appreciate feed back on this. Thank you.

[OldJack]

I question if this can be a qualified §1031 like-kind exchange transaction even if it is handled thru a QI. The taxpayer farmer is sell an easement (right of use) not farm land and replacing or investing a portion of the sale in other real estate. An easement sale is normally income or a reduction of basis depending upon the restrictions of the easement.

Of course, this could qualify if this was a condemnation proceeding but facts presented do not indicate that.

[Gene V]

If this does qualify as a 1031 exchange, then the line numbers should look like this;
line 15. 100,000
line 16 300,000
line 17 400,000
line 18 400,000
line 19 360,000
line 20 100,000
line 21 0
line 22 100,000
line 23 100,000
line 24 260,000
line 25 40,000

[wexeter]

LIke-Kind Replacement Property

Yes, this particular type of easement does qualify as like-kind replacement property.