Updated August 17, 2026
"Like-kind" is the most misunderstood phrase in the whole of Section 1031, because it sounds like it means "similar" and it does not. For real estate it is close to the opposite: almost any real property held for investment or business use can be exchanged for almost any other. The real constraints are elsewhere — in what the property is used for, and in a change made in 2017 that removed everything except real estate.
You can exchange an LA apartment building for:
Grade, quality and property type do not need to match. A Koreatown fourplex for a Walgreens in Tennessee is like-kind. I have closed the replacement side on exactly that kind of trade — net-leased assets across eight states for LA owners who were done being landlords, covered in apartments vs. net lease.
Both properties must be held for productive use in a trade or business, or for investment. That is the test that decides most edge cases.
What fails it:
There is no bright-line holding period written into the statute, which unsettles sellers who want one. Longer holds and demonstrable investment intent — rental income, marketing, treatment on your returns — are what make the position defensible.
Before the Tax Cuts and Jobs Act, like-kind exchanges covered a range of personal property. Since 2018 Section 1031 applies to real property only.
That matters more than it sounds for apartment buildings. Furnishings, appliances, equipment and other personal property conveyed with a building are not exchangeable, and where a purchase price is allocated partly to personal property that portion may be treated as boot. On a furnished or heavily equipped asset this is worth raising with your CPA rather than assuming the whole price rolls over.
Domestic real property is like-kind with other domestic real property. Foreign real property is like-kind only with other foreign real property. You cannot exchange an LA apartment building into a property abroad and defer the gain.
Exchanging with a related party — family members, entities you control — is permitted but carries a two-year holding requirement: if either side disposes of the property within two years, the deferral is generally unwound retroactively. There are exceptions, and this is an area with genuine complexity and IRS attention. Do not do it without counsel.
The breadth of "like-kind" is the useful part, because it means the exchange decision is not a property-type decision at all. It is a decision about what you want your next ten years to look like — more apartments, passive net-leased income, land, a fractional interest, or some combination.
The constraints that will actually shape your exchange are the ones people spend less time on: the 45-day identification rules, replacing the debt as well as the equity to avoid boot, and finding an intermediary you can trust with the proceeds.
Can I exchange an apartment building for raw land?
Yes, provided both are held for investment or business use. Land is like-kind with improved property. What land will not do is generate income while you hold it, which is a separate question about whether it is a good idea.
Can I exchange into a property I will eventually live in?
Acquiring replacement property with the intention of converting it to a personal residence shortly afterwards undermines the investment-intent requirement. Conversions have been done after a genuine period of investment use, with specific rules applying to the eventual sale. This is a plan to build with a CPA in advance, not to improvise.
Is there a required holding period?
The statute does not specify one. Investment intent is the test, and duration is the strongest evidence of it. Very short holds invite challenge.
Can I exchange several small buildings for one large one?
Yes, in either direction. Multiple relinquished properties can be exchanged into one replacement, and one into several, subject to the identification rules and the reinvestment arithmetic.
Does a DST interest qualify?
A properly structured Delaware Statutory Trust interest is generally treated as a direct interest in real property for these purposes, which is precisely why DSTs are used to absorb exchange proceeds. Structure matters — this is not true of every fractional arrangement.
Like-kind is not the constraint sellers expect it to be. For real estate held as an investment, the door is wide: type, grade and location are all flexible. Spend your attention instead on investment intent, on the calendar, and on replacing the debt as well as the equity — those are what actually determine whether an exchange succeeds.
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