1031 QualEx

1031 Exchange Basics

IRC § 1031(a)

What “like-kind” actually means

Like-kind is the most misunderstood term in Section 1031. It does not mean you must trade a duplex for a duplex. For today's exchanges, all U.S. real estate held for investment is like-kind to all other U.S. real estate.

The rule in practice

Both the property you sell (the relinquished property) and the property you buy (the replacement property) must be held for investment or business use. Within that boundary, the categories are wide open. All of these are valid like-kind trades:

  • Vacant land → an apartment complex

  • A rental house → a retail center

  • A farm → a commercial office building

  • One large property → several smaller ones (or the reverse)

What is not like-kind

Real estate is only like-kind to real estate. Section 1031 is real estate only, which rules out:

  • Stocks, bonds, partnership interests, or REIT shares

    You cannot exchange real estate into securities of any kind.

  • Your primary residence

    It doesn't qualify on either side of the exchange.

  • Personal property (equipment, vehicles, artwork)

    No longer qualifies since the 2017 tax law.

The “held for investment” test

What matters is purpose, not property type: the real estate must be held for appreciation, income, or use in a trade or business.

Talk through your exchange before you close.

A ten-minute call is usually enough to know whether a 1031 exchange fits your sale. No cost, no obligation.