Like-Kind Properties: What Real Estate Investors Can (and Can’t) Exchange

The phrase "like-kind" might sound restrictive, but in the world of 1031 exchanges, it's

surprisingly flexible. Still, knowing what qualifies (and what doesn't) is essential to avoiding an unexpected tax bill.

What Is Like-Kind Property?

In a 1031 exchange, "like-kind" simply means both properties must be held for investment or business purposes, not that they must be identical.

Examples of like-kind exchanges include:

● A single-family rental swapped for an office building.

● An apartment complex exchanged for raw land.

● A retail shopping center traded for an industrial warehouse.

The form or quality of the property doesn’t have to match exactly, as long as the use aligns with investment or business purposes.

What Isn’t Like-Kind Property?

Some types of real estate or personal property do not qualify:

• Primary residences (your personal home)

• Second homes or vacation homes (unless converted to rental use first)

• Foreign real estate (only U.S.-based property qualifies for domestic exchanges)

• Inventory or property held primarily for sale (like flipping houses without rental history)

Common Investor Mistakes

• Assuming a vacation home counts: If you haven’t rented it and reported rental income on your taxes, it likely doesn’t qualify.

• Exchanging property used for flipping: Properties held for resale (rather than rental or investment) are not eligible.

• Buying foreign property: Exchanges must involve properties within U.S. jurisdiction.

Understanding like-kind property rules helps investors maximize flexibility without risking disqualification. If you're unsure whether your properties qualify, getting legal advice upfront can save you time, stress, and money down the line