Can I 1031 exchange a boat slip, dock or marina slip?

Treasury's definition of real property names boat slips directly

Since 2018, section 1031(a)(1) applies only to real property. The regulation defines that term to include 'land and improvements to land' and 'water and air space superjacent to land', and its Example 2 applies the definition to a marina whose owner rents U-shaped slips and end ties to boat owners.

The dock structure is covered separately. Reg. section 1.1031(a)-3(a)(2)(ii)(C) lists 'stationary wharves and docks' among inherently permanent structures. A floating dock that is not on the list is tested on five factors, including how it is affixed, whether it is designed to be removed and the time and expense of moving it.

That settles the asset class but not the deal. You still need to own an interest the regulation recognizes and to hold it for rental or investment, which are the next two tests.

What you hold on paper decides whether there is anything to exchange

A deeded slip, sometimes sold as a dockominium unit, is fee or co-ownership of real property. The regulation lists 'fee ownership' and 'co-ownership' among qualifying interests, and paragraph (a)(6) adds that property is real property if state or local law treats it as real property on the date of the exchange.

A slip lease is a leasehold, also a listed interest. To trade a leasehold against a fee, the example in Reg. section 1.1031(a)-1(c) uses 'a leasehold of a fee with 30 years or more to run'; how term length plays out on a marina's own submerged-land lease is covered on the marina page.

Club structures are the trap. Many slip programs sell shares in a corporation or units in an LLC that owns the docks. The regulation says stock, interests in a partnership and 'certificates of trust or beneficial interests' are not real property 'regardless of the classification of such property under State or local law', so those memberships cannot be exchanged.

• Recorded deed to a numbered slip: real property interest.
• Recorded long-term slip lease: leasehold, like kind to a fee at 30 years or more.
• Annual slip rental or marina license to moor: you are the tenant, with little or nothing to sell.
• Equity membership via shares or LLC units: excluded.

A slip that holds your own boat is personal use and fails the holding test

The statute requires the property to be 'held for productive use in a trade or business or for investment'. A slip you keep your own boat in all season is held for your recreation, which is the same reason a personal residence fails.

The IRS safe harbor for mixed-use property, Rev. Proc. 2008-16, covers only a 'dwelling unit' with 'sleeping space, bathroom and cooking facilities'. A slip is not a dwelling unit, so there is no counted-days safe harbor, and the facts decide.

The facts that help are the ones a rental owner would have: a rental agreement or marina rental program, rent at market rates, income reported on your return and no boat of your own in the space. Where your use and rentals are mixed, see 1031 for vacation and short-term rental use for how the holding question is argued.

Worked example: a $160,000 deeded slip into a rental condo

Hypothetical, round numbers; run your own numbers with your CPA. You bought a deeded slip for $60,000, rented it through the marina's program for years and claimed $10,000 of depreciation on the dock improvements. You sell it for $160,000, so the adjusted basis is $50,000 and the realized gain is $110,000.

Through a qualified intermediary you buy a $160,000 condo that you rent out. Every dollar is reinvested in real property, so the full $110,000 is deferred, and the condo takes the slip's $50,000 basis increased by any cash you add.

Buy a $120,000 condo instead and $40,000 comes back as boot, taxed first at up to 25% on the $10,000 depreciation layer under IRS Topic 409. On a deal this size, exchange fees can eat much of the saving, which is the subject of the minimum gain that makes a 1031 worth it.

Any U.S. real property can replace a slip, and a slip can replace any U.S. real property

Like kind refers to 'the nature or character of the property and not to its grade or quality', so the slip and the condo above are like kind, as are a slip and farmland, a slip and an apartment building, or a slip and a Delaware Statutory Trust interest in a property. Only foreign real property is cut off, by section 1031(h).

The boat itself is a different matter. A vessel is personal property, which section 1031 has not covered since 2018; see what does not qualify for a 1031 exchange.

If you are trading out of hands-on slip rentals, a trust interest replaces the management with a passive holding, with its own risks of illiquidity, sponsor fees and no control. See traditional DST exchanges.