Like-Kind Property

"Like-kind" describes the relationship the relinquished and replacement properties must have to qualify for tax deferral under IRC Section 1031. For real estate, the like-kind standard is broad: the properties must both be real property held for investment or productive use in a trade or business, but they need not be the same type, quality, or grade. An investor can exchange raw land for an apartment building, a retail center for an industrial warehouse, or a single rental for a fractional interest in a Delaware Statutory Trust holding institutional property, and each can be like-kind to the other. What matters is the nature or character of the property, not its grade or use. U.S. real property is not like-kind to real property located outside the United States. Since the Tax Cuts and Jobs Act of 2017, only real property qualifies for Section 1031 treatment; personal property and intangible assets such as machinery, vehicles, or franchise rights no longer qualify. Property held primarily for sale, such as a dealer's inventory or a fix-and-flip, is excluded because it is not held for investment.