Effective after December 31, 2017, the Tax Cuts and Jobs Act repealed the favorable tax deferral treatment to company cars, drilling rigs, mining equipment and other personal property. However, the Act still allows a tax free exchange to real property that is held for use in a trade or business or held as an investment.
Even though the Act substantially limits the property that qualifies, an opportunity may still exist for the exchange of mineral and surface rights. Limited authority exists regarding the exchange of properties, however, it is generally held that exchanges of mineral rights for mineral rights, mineral rights for surface rights, and long-term lease for real estate could potentially qualify as an exchange of like-kind property.
It should be noted that a transition rule may apply to qualified personal property that is relinquished before or on December 31, 2017 and the replacement property is later acquired in accordance to the 45-day identification deadline and 180-day exchange deadline.
As companies and investors navigate through the complexities and the repeal of favorable items caused by tax reform, planning opportunities such as tax deferral of qualified property should be considered.