Like-Kind Property for a 1031 Exchange
October 10, 2016
We briefly mentioned like-kind property as we walked through the steps of executing a 1031 exchange. Now that the exchanger is aware of how to identify property and find a QI, the question turns to what the exchanger can identify since the base requirement is a like-kind investment.
Understanding the finer points of how to execute a 1031 Exchange can often feel like learning another language. The IRS has identified as it relates to investment real estate, all real property is like-kind property to one another provided it was used for investment purposes. Therefore, the exchanger has the ability to trade non-common interest and so forth.
So what does that mean?
Another way to state this is that most real estate is like-kind, assuming it is used for investment purposes. According to the IRS, “Like-kind property is property of the same nature, character or class. Quality or grade does not matter. Most real estate will be like-kind to other real estate. For example, real property that is improved with a residential rental house is like-kind to vacant land. One exception for real estate is that property within the United States is not like-kind to property outside of the United States. Also, improvements that are conveyed without land are not of like kind to land.”
Property that can qualify
- Medical Office Buildings
- Industrial Properties
- Student Housing
- Multi-family Properties
- Retail Properties
- Office Space
Properties that are ineligible include primary residences, vacation homes and property specifically bought for resale. Also included are securities or other evidence of indebtedness or interest, stocks, bonds and notes, certificates of trust or beneficial interest and interests in partnerships. Please see Publication 527 by the IRS for more information.
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Please note: 1031RPS.com and its associated personnel are not tax professionals, and they recommend investors consult with their tax advisor to ensure their 1031 Exchange is within the IRS guidelines established