Livestock and Wildlife Exchanges
Livestock and wildlife are considered “personal property” as opposed to “real property” and as such fall under much more restrictive like-kind rules than real estate exchanges. Consequently, personal property cannot be exchanged with real property.
To qualify for 1031 exchange treatment, cattle or other livestock/wildlife must be held with the intent to be used for breeding.
Only same-sex livestock or wildlife are “like–kind”. One can only exchange a male or males for other males or males and likewise breeding cows or does for other breeding females.
Cattle raised “primarily for sale” in the ordinary course of business and other stocker or feeder cattle are inventory and thus do not qualify under the exchange rules. By extension, it is presumed wildlife held and managed to be harvested, do not qualify. This likely would include bulls and heifers raised for sale even if they are breeding animals.
Herd sires or replacement females raised with the intention of using for breeding will likely qualify.
Breeding stock purchased with the intention of holding for breeding but later sold will likely qualify. The regulations do not impose a specific holding period for either the relinquished animals or replacements. The key issue is the “intent to hold” at the time of placement into the herd or time of purchase.
It is likely that a commercial beef cow is like-kind to a registered beef cow. A beef animal is probably not like-kind to a dairy animal because they are entirely different types of livestock.
As in all IRC 1031 Exchanges, the replacement property must be identified within 45 days of closing on the relinquished property. In the case of livestock, the exchanger may be best served by actually purchasing the replacement cattle before the end of the 45 day identification period. The IRC rules do not specifically state how the replacement livestock are to be identified so that all ambiguities are eliminated. If the livestock cannot be purchased before the end of the 45 days, the identification should presumably be as specific as possible. One scenario may be to identify the herd of origin and specific animals in that herd. Under the 200% rule, the total value of the identified livestock could not be more than twice the value of the livestock sold.
This information is not to be taken as legal or tax advice. Please consult your tax advisor before engaging in a 1031 exchange in order to effectively construct an effective plan. Texas 1031 is always available to you as a resource for you and your tax and real estate professionals.