Which of the following could an investor who sells an apartment house purchase using a 1031 exchange under U.S. tax law?

• A. A commercial office building
• B. A collection of rare coins
• C. A personal residence
• D. Shares of a publicly traded corporation

Answer: (A)

Verified step by step guidance

1. Understand the concept of a 1031 exchange: A 1031 exchange, under U.S. tax law, allows an investor to defer capital gains taxes on the sale of an investment property by reinvesting the proceeds into a 'like-kind' property. 'Like-kind' generally refers to real estate held for investment or business purposes.
2. Identify the key requirement for a 1031 exchange: The replacement property must be of the same nature or character as the property sold. For example, real estate held for investment can be exchanged for other real estate held for investment, but not for personal property or securities.
3. Evaluate the options provided: Analyze each option to determine whether it qualifies as 'like-kind' under the 1031 exchange rules. For example, a commercial office building qualifies as real estate held for investment, whereas rare coins, a personal residence, and shares of a publicly traded corporation do not meet the criteria.
4. Apply the rules to the problem: Determine which option aligns with the definition of 'like-kind' property. Real estate held for investment purposes, such as a commercial office building, is eligible for a 1031 exchange.
5. Conclude the analysis: Based on the criteria for a 1031 exchange, the investor who sells an apartment house can purchase a commercial office building as the replacement property under U.S. tax law.