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

Section 1031 of the Internal Revenue Code allows taxpayers to indefinitely defer tax liability on gains from the disposition of appreciated property in a like-kind exchange. This raises a key question: What qualifies as “like-kind” property under Section 1031? The definition is broader than many people realize, which makes it critical for businesses and real estate investors not to write off the possibility of a 1031 exchange too soon. Learn more from the 1031 exchange specialists at 1031 National Services:

Understanding What Constitutes Like-Kind Property Under Section 1031

Under Section 1031, only exchanges involving like-kind property are eligible for indefinite tax deferral. As the IRS explains:

“Generally, if you make a like-kind exchange, you are not required to recognize a gain or loss under Internal Revenue Code Section 1031. If, as part of the exchange, you also receive other (not like-kind) property or money, you must recognize a gain to the extent of the other property and money received. You can’t recognize a loss.

As the IRS also explains, “[u]nder the Tax Cuts and Jobs Act [of 2017], Section 1031 now applies only to exchanges of real property and not to exchanges of personal or intangible property.” Thus, while specific types of personal and intangible assets used to qualify as like-kind property with one another, this is no longer the case. Today, Section 1031 only applies to real estate.

Within the real estate realm, when is one property of like-kind with another? The IRS answers this as well, stating:

“Real properties generally are of like-kind, regardless of whether they’re improved or unimproved. For example, an apartment building would generally be like-kind to another apartment building. However, real property in the United States is not like-kind to real property outside the United States.”

The IRS’s example involving two apartment buildings isn’t particularly useful. However, the first sentence in this quote is instructive, as it makes clear that any piece of real estate will be considered of like-kind with any other. The final sentence in this quote outlines the one clear exception, and this is based on the plain language of Section 1031(h) (“Real property located in the United States and real property located outside the United States are not property of a like kind.”).

In summary, all parcels of real estate located within the United States are considered of like-kind with one another for purposes of conducting a Section 1031 exchange. Residential properties are considered of like-kind with commercial properties, and improved properties are considered of like-kind with vacant land—as long as both parcels are “held for productive use in a trade or business or for investment,” as required by Section 1031(a).

What if You Receive Non-Like-Kind Property as Part of a 1031 Exchange?

Let’s say you conduct a 1031 exchange and receive non-like-kind property as part of the transaction. For example, what if you acquire a commercial property that comes with used equipment as part of the deal?

In this scenario, the non-like-kind property would be classified as “boot,” and the receipt of boot in connection with a 1031 exchange can have immediate tax consequences. Taxpayers who receive boot can owe tax immediately upon executing the exchange, and failure to pay in a timely manner can trigger interest and penalties. For more information, you can read: How Do You Deal with Boot in a 1031 Exchange?

What Are the Other Requirements for Conducting a 1031 Exchange?

In addition to ensuring that a 1031 exchange involves like-kind properties, there are several additional requirements for securing indefinite tax deferral under Section 1031. For example, strict timing requirements apply, and failing to meet the applicable deadlines—even by a day—can result in the loss of tax-deferral eligibility.

Additionally, to ensure that a transaction (or series of transactions) qualifies as an “exchange” for purposes of Section 1031, taxpayers must work with a qualified intermediary. Taxpayers must also ensure that the “same taxpayer” is involved in all aspects of the process. For more information about these (and other) requirements, you can read: What Are the Requirements for a 1031 Exchange in 2026?

Contact the 1031 Exchange Specialists at 1031 National Services

Do you need more information about the requirements for a 1031 exchange? If so, we invite you to get in touch. We work with individuals and businesses nationwide. To arrange a free consultation with one of our 1031 exchange specialists, please call 888-872-1031 or tell us how we can contact you online today.