1031 Like Kind Exchange
What does Like-Kind Mean?
One of the key features of a 1031 Like Kind Exchange is that the replacement property in an exchange must be “like kind” in order to qualify and in turn be relinquished during the transaction.
In a Like Kind Exchange the term ‘like kind” is broadly defined and considered similar in nature or character, not withstanding differences in grade or quality.
All real property is like kind, regardless of whether it is improved or unimproved and regardless of the type of improvement or interest. Here are 3 examples that show what a like kind exchange can look like:
- You can exchange raw land for an apartment building.
- You can exchange apartments for an industrial warehouse.
- You can exchange a motel for a storage facility.
What is NOT Like Kind?
To determine if you qualify for a Like Kind Exchange, it is important to understand what a Like Kind Exchange is not. For example, real property is not like kind to personal property. Therefore an exchange of a building lot for a vehicle does not qualify for a 1031 Like Kind Exchange. And, an apartment building is not a 1031 Like Kind Exchange to a primary residence.
When More Than One Property Is Involved
Another feature of 1031 Like Kind Exchanges is that one property can be like kind to more than one property! The IRS says you can designate up to 3 properties as long as you eventually close on one or more of the identified properties.
You can even take it a step further and identify an unlimited number of potential replacement properties (more than 3 properties) as long as the fair market value of the replacement properties does not exceed 200% of the aggregate fair market value of all the exchanged properties.
If you’d like to learn more about relinquished properties and replacement properties in a 1031 Like Kind Exchange, read Benefits of 1031 Tax Deferred Exchanges.
The complexity and hidden opportunities
of 1031 Like Kind Exchanges is why clients reach out to the qualified intermediaries at Exchange Authority for advice and counsel in these transactions. If you’re thinking about how 1031 Like Kind Exchanges can work to your benefit, contact the qualified intermediaries at the Exchange Authority today!