The IRS considers all “Investment Properties” to be “Like-Kind.” Properties do not need to be the same type. For example, raw land can be exchanged for an office building, a warehouse can be exchanged for NNN retail property, or a rental house for a Replacement Property Interest in a 300-unit apartment complex.

What property qualifies for a like-kind exchange?

Like-kind properties are real estate assets of a similar nature that can be exchanged without incurring any tax liability under Section 1031 of the Internal Tax Code. Properties must be held for business or investment purposes but do not need to be similar in grade or quality.

What is another name for a like kind exchange?

1031 exchange
A like-kind exchange is also known as a 1031 exchange or a Starker exchange.

How long do you have to do a like kind exchange?

To receive the full benefit of a 1031 exchange, your replacement property should be of equal or greater value. You must identify a replacement property for the assets sold within 45 days and then conclude the exchange within 180 days.

Why is the like kind exchange beneficial for rental property?

Why the Like Kind Exchange Is Beneficial for Rental Property Owners. The like kind exchange can be beneficial for a variety of real estate transactions (like purchasing farm land), but there’s one type of transaction it’s particularly beneficial for: a 1031 exchange of rental property — which, as an owner of rental properties,…

What do you need to know about like kind exchange?

To defer paying capital gains taxes using a 1031 like-kind exchange, your replacement property must be of the same kind as the property sold. You also must hold both properties for business, productive use in a trade, or investment (26 U.S.C. § 1031 (a)). But what qualifies as the same kind? What types of properties are not allowed?

Who is eligible for 1031 like kind property exchange?

Any tax payer who uses a property in their business or as an investment can take advantage of the 1031 exchange. In a typical IRS qualified §1031 like-kind property exchange, investors defer paying capital gains, depreciation recapture, and income taxes on commercial investment property when it’s sold.

Can a rental property be exchanged for a primary home?

The property purchased must be used as a business or investment property; the 1031 exchange of a rental property to a primary residence or second home is not valid.