What does like kind mean in a 1031 Exchange?
In a 1031 Exchange, "like-kind" is a legal term that is much broader than it sounds. Most people think it means you have to swap a rental house for another rental house, but that is a myth. The Golden Rule: For a 1031 exchange to work, you must be swapping real estate held for business or investment purposes for other real estate that will also be used for business or investment. The IRS cares about the nature of the property (it’s real estate), not its grade or quality. What Counts as "Like-Kind"? You can mix and match almost any type of investment real estate. For example, you can exchange: - A rental house for an apartment complex. - Raw land for a shopping center or office building. - A warehouse for a retail storefront. - Farmland for a medical facility. - A 30-year leasehold for outright ownership (fee simple). What does NOT count? There are strict boundaries you cannot cross: The Bottom Line: If it’s an investment property located in the U.S., it is likely "like-kind" to any other investment property in the U.S. - No Personal Use: You cannot exchange your primary residence or a vacation home you use personally. - No Crossing Borders: U.S. property is not "like-kind" to foreign property (e.g., you can't swap a Miami condo for a London flat). - No "Flipping": Properties held primarily for sale (like a quick fix-and-flip) are considered inventory, not investments, and do not qualify. - No Paper Assets: You cannot exchange real estate for stocks, bonds, or partnership interests.