Like-kind is the qualification standard for what can be exchanged under Section 1031, and it's far broader than the phrase suggests. It doesn't mean a condo has to exchange for another condo or a retail building for another retail building; it means any real property held for investment or business use can exchange for any other real property held for investment or business use, regardless of how different the two properties are in type, size, or location. That breadth is what makes the exchange tool useful for reshaping a portfolio, not just deferring tax on a like-for-like swap.
What Changed in 2018
Before the Tax Cuts and Jobs Act, like-kind exchanges could include personal property such as equipment, vehicles, and aircraft alongside real estate. Since 2018, Section 1031 applies exclusively to real property; personal property exchanges no longer qualify at all. This matters for owners of properties that include significant equipment or fixtures, since only the real property component of a sale is eligible for exchange treatment, and any value attributable to personal property is treated as a separate taxable sale. A hotel or restaurant sale, for instance, often needs the purchase agreement to allocate value between the real property and the furniture, fixtures, and equipment so the exchange only covers the portion that actually qualifies.
How Broad the Real Property Category Actually Is
Within real property, the range of qualifying combinations is wide. A Park City investor can exchange a short-term rental condo out of vacation-rental use and into an industrial warehouse, a multifamily building, a net-leased retail pad, or a fractional DST interest, as long as both sides of the transaction are held for investment or business purposes. Raw land can exchange into an improved building and vice versa. Geographic location doesn't matter either; a Utah property can exchange into real estate anywhere in the United States, which opens the door to diversifying out of a single mountain-town market into other regions or asset classes entirely. An investor concentrated in seasonal, resort-driven property types can use that flexibility to move into a more stable asset class, like multifamily or industrial, without breaking the tax deferral to do it.
What Doesn't Qualify
The intent behind holding the property is what disqualifies certain transactions, not the property type itself. A primary residence doesn't qualify because it isn't held for investment or business use, though a portion of a mixed-use property, such as a duplex where one unit is rented out, can sometimes support a partial exchange on the rental portion. Property held primarily for resale, like fix-and-flip inventory or a spec-built home intended for a quick sale, generally doesn't qualify either, since the holding intent has to be investment or business use rather than short-term resale. Foreign real estate also doesn't qualify for exchange with U.S. property, since like-kind treatment is limited to property located within the United States.
Why Holding Intent Gets Scrutinized
Because the disqualifying factor is usually intent rather than a clean category, exchangers with a short holding period or a history of frequent buying and selling sometimes face closer scrutiny on whether a property was genuinely held for investment. Documentation that supports investment intent, such as rental history, lease agreements, or a consistent hold period before the exchange, helps establish that the property qualifies. This is one of the areas where tax advisor and CPA coordination is worth engaging early, particularly for an exchanger with a mixed portfolio of long-term holds and shorter-term flips. A Park City owner who used a property occasionally as a personal getaway while also renting it out needs to be especially careful here, since mixed personal and rental use can blur the investment-intent line if the rental history isn't well documented.
Common 1031 Exchange Questions
Does like-kind mean I have to exchange into the same type of property
No, like-kind only requires that both properties be real property held for investment or business use; a retail building can exchange into an apartment complex, industrial space, or a DST interest.
Can personal property still qualify for a 1031 exchange
No, since the Tax Cuts and Jobs Act took effect in 2018, only real property qualifies for like-kind exchange treatment; equipment, vehicles, and other personal property no longer qualify.
Can I exchange a Park City property for real estate in another state
Yes, like-kind exchanges aren't limited by geography within the United States; a Utah property can exchange into real estate located anywhere in the country.
Does my primary residence qualify for a 1031 exchange
No, a primary residence isn't held for investment or business use, so it doesn't qualify, though a rental portion of a mixed-use property can sometimes support a partial exchange.
Can I exchange U.S. property for real estate in another country
No, like-kind treatment under Section 1031 is limited to real property located within the United States, so foreign real estate doesn't qualify as a replacement.
Does the replacement property have to be a similar size or value
No, there's no requirement that the properties be similar in size or value, though buying a replacement of lower value than the relinquished property can create taxable boot on the difference.
