Qualifying and Like-Kind Exchange Property
At Exchange Authority we get a lot of questions from clients about what type of property would qualify for a §1031 exchange – “I’m selling my personal residence; can I exchange that?” (Unfortunately, no, because personal residences don’t qualify as investment property.) “My daughter has been living in my cabin, not paying rent, and now I want to sell the cabin – can I exchange that?” (Alas no, because rent would have had to have been paid at fair market value for the cabin to qualify as investment property.) “I want to sell my rental units in Florida and buy a home in France. Can I do an exchange?” (No, because even if you intend to rent out the house in France, only domestic property may be exchanged for domestic property.)
Below we’ve listed some facts about like-kind and qualifying property that you may not know or may have forgotten!
- Improved real estate is like-kind to unimproved real estate. Apartments are like-kind to land and to a shopping center.
- Real property which is not properly and timely identified prior to the end of the identification period, or which is not acquired prior to the end of the exchange period is deemed not to be like-kind to any other real property!
- A leasehold interest in real estate with more than 30 years remaining is like-kind to a fee interest in any other real estate.
- Apartments are like-kind to an office building, raw land, duplex, farm, single family home, residential condo, office condo, industrial condo, shopping center, strip mall, and other apartment complexes.
Property must be held for trade or business or for investment to qualify for an exchange. Property held primarily for personal use, and dealer property, do not qualify.
- Exchange property should not be converted to a non-qualifying use for at least one year after an exchange. Personal use property and dealer property are non-qualifying uses.
- If you hold property primarily for appreciation you are deemed to hold the property for “investment”. Property held for investment qualifies for an exchange.
- Property given and property received in an exchange should be held for a qualifying purpose for at least two years prior to an exchange and at least two years following an exchange.