Like-Kind Property Explained

Like-kind property is the foundational requirement of Section 1031, and it is far broader than the phrase suggests. Following the Tax Cuts and Jobs Act, Section 1031 treatment is limited to real property, meaning personal property such as equipment, vehicles, and machinery no longer qualifies for exchange treatment at all. Within real property, however, the like-kind standard is generous. Virtually any real property held for productive use in a trade or business or held for investment can be exchanged for any other real property held for the same purposes, regardless of grade, quality, or type. An investor in Columbus, OH can exchange raw land for a multifamily apartment building, exchange an industrial warehouse for a medical office building, or exchange a retail strip center for a self storage facility, and all of these qualify as like-kind under the Internal Revenue Code.

The defining test is not the physical nature of the property but the holding purpose. Property held primarily for resale, such as a builder's inventory of finished homes or a dealer's flip properties, does not qualify because it is not held for investment or business use. A primary residence also does not qualify, since it is held for personal use rather than investment or business purposes, though a former rental converted to personal use, or a personal residence converted to a rental, can sometimes qualify depending on the holding period and intent demonstrated before the exchange. Foreign real property is not like-kind to property located within the United States, so an exchanger in Columbus, OH cannot exchange a domestic commercial property for real estate located outside the country and still receive Section 1031 deferral.

The like-kind standard also extends to certain property interests beyond simple fee simple ownership. A leasehold interest with thirty years or more remaining, including renewal options, is treated as like-kind to a fee interest. Easements, mineral rights, water rights, and tenant-in-common fractional interests in real property can also qualify under the right structure. Delaware Statutory Trust beneficial interests are often used as replacement property in exchanges as well, though these interests may be treated as securities under federal and state law. Because interests in a Delaware Statutory Trust or tenant-in-common structure may be securities, this site does not sell or offer securities and only provides introductions to licensed providers for investors who want to explore that path.

Investors in Columbus, OH considering a like-kind exchange should evaluate replacement property candidates based on holding purpose and intent rather than assuming similarity in property type is required. A vacant lot, an office building, and an apartment complex can all be like-kind to one another as long as each is held for investment or business use, which gives exchangers considerable flexibility to reposition capital across property types, asset classes, and even geographic markets while still deferring the gain from the relinquished property sale.