Defining Like-Kind Real Property

Like-Kind Requirement - Replacement property acquired in an exchange must be "like-kind" to the property being sold (relinquished property). Like-kind means "similar in nature or character, notwithstanding differences in grade or quality." In order for the properties to qualify as "like-kind" they must be held for productive use in a trade or business or held for investment purposes and be located within the United States. Foreign property does not qualify. For example: raw land held for investment may be exchanged for single family rentals or any combination of the below examples:

• Single Family Rentals
• Farms/Ranches
• Offices
• Motels/Hotels
• Golf Courses
• Multi Family Rentals
• Raw Land
• Retail
• Industrial
• Leases of 30 years or more

Property not eligible under 1031...

• Primary Residence
• Interest in Partnerships
• Foreign Property
• Money
• Stocks, Bonds, or Notes
• Stock in trade, inventory or other property held inherently for sale

Section 1031 of the Internal Revenue Code, Sec. 1031 [1986 Code] 1031 - Exchange of property held for productive use or investment (a) Non-recognition of Gain or Loss from Exchanges Solely in Kind.

(1) IN GENERAL - No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.

(2) EXCEPTION - This subsection shall not apply to any exchange of — stock in trade or other property held primarily for sale.

• stocks, bonds, or notes
• other securities or evidences of indebtedness or interest
• interest in a partnership
• certificates of trust or beneficial interests, or
• closes in action.

(e) EXCHANGES OF LIVESTOCK OF DIFFERENT SEXES - for purposes of this section, livestock of different sexes are not property of a like-kind.