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Tangible Personal Property

Introduction

Tangible Depreciable Personal Property is property that has a physical existence that can be felt or touched. Examples of such property include equipment, tools, trucks and cars, and artwork. Please see Tangible Property Examples for a more comprehensive outline of this kind of personal property. Under the Tax Regulations to Section 1031, replacement property must be of a "like-class" or "like-kind."

The Regulations provide that tangible depreciable property is like-kind if the relinquished and replacement properties are identical and put to the same use, such as the exchange of a road grader for another road grader both used exclusively by a general contractor building a new stretch of freeway for the state.

If not of like-kind, relinquished property and replacement property must be of the same "General Asset Class" or same "Product Class." Tangible depreciable property may not be classified within more than one General Asset Class or within more than one Product Class. Property that is classified within in any of the general asset classes may not also be classified within a product class. The general asset classes take precedence over the product classes, so that if relinquished and replacement properties are within the same product class but different general asset classes, they would not be considered as like-class.

General Asset Classes

Items of tangible personal property will be considered to be like-kind if they are within the same General Asset Class. The Regulations established thirteen (13) such classes:

  1. Office furniture, fixtures and equipment
  2. Information systems, such as computers and peripheral equipment
  3. Non-computer data handling equipment, such as copiers.
  4. Airplanes, helicopters, air frames and engines
  5. Automobiles and taxis
  6. Buses
  7. Light general-purpose trucks
  8. Heavy general-purpose trucks
  9. Railroad cars and locomotives
  10. Over-the-road tractor units
  11. Trailers and trailer-mounted containers
  12. Vessels, barges, tugs and marine transportation equipment
  13. Industrial steam and electric generation and distribution systems

The Regulations for determining Product Classes require reference only to the 6-digit product class designations within Sectors 31, 32 and 33 of the North American Industry Classification System (NAICS). NAICS Sectors 31-33 concern specialized manufacturing industries for products and equipment. Copies of the NAICS Manual may be obtained from the National Technical Information Service of the Department of Commerce and may be accessed, with a more complete listing of manufactured products and manufacturing industries, on the internet at http://www.census.gov/naics.

Examples:

The Tax Regulations provide the following examples:

Example 1. Taxpayer A transfers a personal computer (asset class 00.12) to B in exchange for a printer (asset class 00.12). With respect to A, the properties exchanged are within the same General Asset Class and, therefore, are of a like kind.

Example 2. Taxpayer C transfers an airplane (asset class 00.21) to D in exchange for a heavy general-purpose truck (asset class 00.242). The properties exchanged are not of a like class because they are within different General Asset Classes. Because each of the properties is within a General Asset Class, the properties may not be classified within a Product Class. The airplane and heavy general-purpose truck are also not of a like class. Therefore, the exchange does not qualify for non recognition of gain or loss under Section 1031.

Example 3. Taxpayer E transfers a grader to F in exchange for a scraper. Neither property is within any of the general asset classes. However, both properties are within the same product class (NAICS code 333120). The grader and scraper are of a like class and deemed to be of a like kind for purposes of section 1031.

Example 4. Taxpayer G transfers a personal computer (asset class 00.12), an airplane (asset class 00.21) and a sanding machine (NAICS code 333210), to H in exchange for a printer (asset class 00.12), a heavy general purpose truck (asset class 00.242) and a lathe (NAICS code 333210). The personal computer and the printer are of a like class because they are within the same general asset class. The sanding machine and the lathe are of a like class because they are within the same product class (although neither property is within any of the general asset classes). The airplane and the heavy general purpose truck are neither within the same general asset class nor within the same product class, and are not of a like kind.