What Qualifies as Like-Kind Property in a 1031 Exchange?

What does “like-kind” actually mean?

The IRS looks at the nature or character of the real property, rather than whether the two properties have the same grade or quality. Improved and unimproved real estate can be like-kind. IRS Publication 544 specifically describes exchanges of city property for farm property and improved property for unimproved property. IRS Publication 544: Like-kind exchanges

That distinction gives investors flexibility. Selling a rental house does not automatically mean the replacement must be another rental house. An investor may be able to exchange into commercial real estate or land held for investment, provided the specific property interests and the rest of the exchange satisfy Section 1031.

The property category can change. The qualifying investment or business purpose still matters.

Which properties can qualify? Examples at a glance

The examples below illustrate the general federal like-kind property rules. They are not approvals of individual transactions. For potentially qualifying examples, assume both properties are in the United States and held for the required investment or business purpose.

Sources: IRS real estate tax tips, Publication 544, and Form 8824 instructions.

What does not qualify for a 1031 exchange?

Property used only for personal purposes

A home used solely as your primary residence is not business or investment property for Section 1031 purposes. A separate provision, Section 121, may apply to gain on the sale of a main home. Mixed-use properties and properties converted between personal and rental use need their own analysis; a change of label alone does not establish eligibility. IRS Form 8824 instructions: Property Used as Home

Real estate held primarily for sale

Section 1031 excludes real estate held primarily for sale. A property acquired and held as resale inventory is different from one held for rental income or investment appreciation. The intended use of the replacement does not cure an ineligible relinquished property. IRS real estate tax tips

Most personal and intangible property

For exchanges under the current rules, Section 1031 applies to qualifying real property. Standalone vehicles, artwork and equipment generally do not qualify. Certain fixtures and real-property interests require closer classification, so an investor selling a furnished or operating property should not assume every asset in the sale receives the same treatment. IRS Form 8824 instructions: Definition of Real Property

Does a 1031 exchange eliminate the tax?

A qualifying 1031 exchange generally defers recognition of gain; it does not simply erase the gain. The tax basis carried into the replacement property helps preserve the deferred gain for a later taxable disposition. IRS Publication 544

This matters when comparing two investment choices. A deferral can allow more capital to remain invested, but the replacement property's operating costs, financing, vacancy risk and suitability still deserve an independent review. Tax treatment is one part of the decision.

What if you receive cash or other property?

Cash or non-like-kind property received in an exchange is often called boot. It can produce recognized gain, generally limited by the gain realized in the exchange. Debt relief can also affect the calculation. IRS Publication 544: Partially Nontaxable Exchanges

Before agreeing to keep cash or change the financing structure, have your tax adviser calculate the effect.

What are the deadlines for a delayed 1031 exchange?

In a typical delayed exchange, the replacement property arrives after the relinquished property is transferred. The IRS specifies two timing requirements:

The 45-day identification period is inside the exchange period. You do not receive 45 days plus another 180 days. The tax-return deadline can also shorten the available exchange period, so a year-end sale warrants a discussion with your tax preparer about filing deadlines and extensions. IRS Form 8824 instructions: Deferred Exchanges and Lines 5–6

Applicable IRS disaster relief can postpone certain exchange deadlines for eligible taxpayers or transactions. Do not assume an extension applies simply because a disaster has occurred; verify the specific notice and eligibility conditions with your advisers. IRS Revenue Procedure 2018-58, Section 17

Can you receive the sale proceeds and arrange the exchange afterward?

Do not assume you can deposit the sale proceeds in your own account and later turn the sale into a tax-deferred exchange. Actual or constructive receipt of proceeds can prevent the intended deferred-exchange treatment. The exchange structure and restrictions on access to funds need attention before the relinquished-property closing. IRS Publication 544: Deferred Exchanges

A qualified intermediary arrangement is a commonly used safe harbor. The intermediary's eligibility, written agreement and handling of the exchange must satisfy the relevant rules. A QI is not interchangeable with any person willing to hold the money. IRS Form 8824 instructions: Deferred Exchanges

Read more about the qualified intermediary's role.

A New York investor's example: different buildings, separate questions

Consider an investor who owns a Brooklyn rental building and is exploring investment real estate in another U.S. state. The proposed replacement is a commercial property rather than another residential building.

The difference in building type is not, by itself, the obstacle. Under the IRS's broad real-estate like-kind framework, the investor should instead investigate qualifying use, the property interests involved and the transaction requirements. IRS real estate tax tips

Before moving forward, a useful planning conversation would cover:

• How the current property has been used and documented.
• How the replacement will be held and operated.
• Who will own each property and sign the exchange documents.
• Whether the identification and acquisition dates work.
• Whether cash, financing or transaction expenses affect the tax result.
• What state-specific advice and reporting are needed.

This example describes a planning situation, not a completed exchange or a guaranteed outcome. Federal eligibility should not be mistaken for a completed analysis of state taxes.

How do you report a like-kind exchange?

The IRS uses Form 8824, Like-Kind Exchanges, to report the transaction. The form addresses the exchanged properties, relevant dates, gain and the basis of replacement property. A qualifying exchange can still have a reporting requirement even if no gain is currently recognized. IRS: About Form 8824

Give your tax preparer the exchange agreement, closing statements, identification documents, acquisition dates and supporting basis records. Use the form and instructions applicable to your filing year. The IRS instructions available when this article was prepared were labeled 2025; consult the IRS form page for later revisions.

Questions to answer before your sale closes

Use this checklist to prepare for a conversation with your exchange professional and tax adviser:

1. Property use: Is the property held for investment or business, rather than personal use or primarily for resale?
2. Replacement goal: What do you want the next property to accomplish—different management demands, location or property type?
3. Transaction structure: Have the exchange documents and funds-handling arrangements been established before closing?
4. Dates: What are the written-identification deadline and the actual acquisition deadline, including the tax-return rule?
5. Tax calculation: What are the adjusted basis, liabilities, expected cash received and exchange expenses?
6. Records: Who is gathering the documentation your tax preparer needs for Form 8824?

Planning to sell an investment property? Build your 1031 exchange plan to share your property and timing with Leah Badach. Bring your tax adviser into the conversation before closing so the property search and exchange structure can be evaluated together.