We discuss property in great deal in our blog posts. We talk about property that can be exchanged for other property, that can be held for investment, or that can be bought or sold.
But what, exactly, is “property?”
Black’s Law Dictionary defines property as “The ownership of a thing is the right of one or more persons to possess and use it to the exclusion of others.” In plain English, property is something you own. The doo-dads on your desk are your property. The clothes on your back, the toenail clippers you use, the stuff you might buy from Amazon – all property.
Though the property definition is fairly straightforward, it consists of many categories, with the two main ones being personal property and real property. Each property category has different rules and regulations when it comes to acquisition, ownership and disposition.
The Reality of Real Property
Returning to Black’s Law, real property is “applied to land and immovable property on land, such as buildings.” So, real estate. Plants and trees growing on that land are also real property.
However, things become tricky with those plants and trees. Let’s say you cultivate a garden plot in the backyard of your vacation home; you like growing tomatoes and cucumbers. Those vines, with their fruits and vegetables, are defined as real property – at least, until you begin your harvest. Once those tomatoes and cucumbers are in your bowl or basket, they become personal property, though the vines remain real property.
The ownership situation becomes more interesting if you sell fruits and vegetables to your neighbor. Once you and your neighbor agree to a contract, the tomatoes and cucumbers becomes the neighbor’s personal property – even if you haven’t yet harvested them. Meanwhile, the vines remain real property.
On the Personal Side
Aside from vegetables, personal property is defined as “the belongings of an individual, excluding any real estate property or other buildings,” according to Black’s Law. This is a large category, so the law obligingly provides subcategories, consisting of tangible (or “chattel”) and intangibles.
Chattel – See It, Touch It
Chattel, which traces its lineage to the middle ages during which “cattle” was considered valuable property, is “personal property . . . not amounting to a freehold or fee in land,” to quote Black’s. Your desk doo-dads are chattel, as are the tomatoes you pick for your own consumption. Everything that isn’t tied to the land, or which is severed from the land, is personal property.
That is, until it isn’t. Chattel has subcategories: chattel real, and chattel personal. Chattel real is “an interest in land that isn’t a freehold, but a leasehold.” Back to plain English, chattel real is a lease, a land or a building you hold for a limited amount of time. An apartment building is real property. Residents control their units through chattel real laws that expire when the lease ends.
Finally, there is chattel mortgage. In the United States, this term is better known as a secured transaction or even a secured loan. Black’s defines a chattel mortgage as personal property that is transferred “as security for a debt or obligation.” If the borrower fails to meet the contract terms, lender has the right to take ownership of the personal property.
Ads on TV that promise viewers cash for their car titles is a good example of a chattel mortgage. The lender will offer the borrower a loan based on a percentage of the car’s value, and will hold onto the car’s title, as collateral, until the loan is repaid.
Intangibles – Legal Right of Ownership
The final category is intangible personal property, which can include bank accounts, licenses, intellectual property (copyrights, trademarks and patents), stocks, bonds and insurance policies. Intangibles can’t be seen or touched, and ownership implies a legal right, rather than physical possession. If you have a copyright on a book you’ve written, you don’t own the book itself outright. What you own is the legal right to do anything you want with the book, such as sell it electronically or get it printed.
There are certain intangibles that can’t be owned. Light can’t be owned, nor can the high seas, as these are considered communal, or belonging to everyone. “Air” is also communal – except when it comes to “air rights.” With air rights, we need to return to real property. Air rights give you the ability to control, occupy or use the vertical space above your real estate. You can transfer, lease or sell the rights to others (though when you build within your “air property” there are other rules to which you need to adhere).
Can we help you?
If you’re reading this blog on the Realized 1031 website, you may be wondering how all this applies to your 1031 exchange. As we covered in a recent blog, the recent Tax Cuts and Jobs Act eliminated like-kind exchanges for personal property. Fortunately, the like-kind exchange option still applies to real property (provided such property is held for business or investment purposes).
While property ownership could be considered fairly straightforward, there are many legal rules when it comes to possession. Certainly, you can give your dishes and silverware to your son or daughter, to help them with their first apartment, with no legal hassles. However, when it comes to the sale or transfer of property of worth, whether real or personal, it’s best to consult a trained professional.
Need help determining if your property qualifies for a 1031 exchange? Looking for 1031 exchange options for the real property you are selling? Contact the experts at Realized 1031 with your questions. Log onto https://www.realized1031.com/ or call 877.797-1031.
As an expert in property law and real estate, I have a deep understanding of the concepts discussed in the article. My knowledge is grounded in legal principles, and I can provide clarity on the various categories of property, ownership rights, and the implications for transactions such as the 1031 exchange.
The article delves into the definition of property, referencing Black's Law Dictionary to establish a foundation. According to Black's Law Dictionary, property is "the ownership of a thing is the right of one or more persons to possess and use it to the exclusion of others." This definition aligns with the legal understanding of property as something one owns and has the right to use and possess.
The two main categories of property, as outlined in the article, are personal property and real property. Real property, often synonymous with real estate, includes land and immovable property on land, such as buildings. The article further explores the complexity of real property when it comes to plants and trees on the land, emphasizing the distinction between real property and personal property.
Within personal property, the article discusses tangible (or "chattel") and intangible categories. Tangible personal property, or chattel, encompasses items that can be seen or touched and is further divided into chattel real and chattel personal. Chattel real refers to an interest in land that is not a freehold but a leasehold, while chattel personal involves personal property not tied to the land.
The article also introduces the concept of a chattel mortgage, explaining its relevance in the context of secured transactions or loans where personal property serves as collateral. Examples, such as ads offering cash for car titles, illustrate the application of chattel mortgages.
In the realm of intangible personal property, the article covers legal rights of ownership over assets like bank accounts, licenses, intellectual property, stocks, bonds, and insurance policies. The distinction is made between physical possession and legal ownership, with intellectual property serving as a prime example.
The discussion extends to the notion of intangibles that cannot be owned, such as light, the high seas, and communal air. However, it introduces the concept of "air rights" in real property, allowing control, occupation, or transfer of the vertical space above one's real estate.
Finally, the article connects these concepts to the implications of the Tax Cuts and Jobs Act on like-kind exchanges, emphasizing the continued relevance of like-kind exchanges for real property in the context of a 1031 exchange. It wisely advises seeking professional guidance for complex transactions, underlining the importance of consulting experts, particularly in the intricate landscape of property law and exchanges.
