1031 Exchange - "Like-Kind" Property
Investors often mistakenly believe they must acquire property like their relinquished property. They are surprised to learn a wide variety of properties can be considered "like-kind."
"Like-kind" does not refer to the nature, character or type of property. Instead, it addresses the intended use of the property. Provided the property is initially acquired and held for either business or investment purposes, it can qualify as a suitable replacement property under IRC Section 1031.
For example, any of the following can be considered "like-kind" property exchanges: a duplex for a fourplex, bare land for improved property, a rental house for a retail center or an apartment building for an office building. Investors do not have to exchange for exactly the same type of property as relinquished.
The tax code also lists items that are not considered "like-kind". These include:
- Stock in trade or other property held primarily for sale;
- Stocks, bonds, or notes;
- Other securities or evidences or indebtedness;
- Interests in a partnership;
- Certificates of trusts or beneficial interest.
In addition, the Code was amended in 1989 rendering property outside the United States non "like-kind".