1031 Exchange Requirements
Real Property Like-Kind Requirement
Any type of real property can be exchanged provided both the relinquished property and the replacement property must be held for productive use in a trade or business or for investment. The term like-kind when pertaining to real property exchanges is very broad.
- Properties may be located anywhere within the United States (50 states or District of Columbia). U.S. territories are not eligible although Letter Rulings 9038030 and 200040017 allowed Taxpayer to acquire rental property located in the U.S. Virgin Islands. Temporary regulations issued in 2005 (T.D. 9194) provide for the inclusion of properties in the U.S. Virgin Islands, Guam and the Northern Mariana Islands.
- More than one property may be sold or acquired.
- Examples of like-kind real property that can be exchanged under Section 1031 include vacant land, office buildings, duplexes, apartment buildings, single family homes used as rentals, warehouses, farms, Bed & Breakfasts, 30-year leasehold interests, utility easements, conservation easements, cell tower easements, oil and gas royalties, co-tenancy interests and mineral rights. Tenant-in-Common Interests (TIC) and Delaware Statutory Trusts (DST) are also considered real property for 1031 purposes.
- Examples of non-like-kind real property that cannot be exchanged under Section 1031 include primary residences, “flips,” stocks, bonds, notes, mortgages, cash, equipment, goodwill, inventory and interests in a partnership.