WHAT IS LIKE-KIND PROPERTY?
Pursuant to IRC §1031, capital gain tax deferment requires the exchange of "like-kind" relinquished property for other "like-kind" replacement property. Contrary to the commonly held misconception that exchanged properties must be of the exact same type - for example, that bare land be exchanged for bare land or an income property be exchanged for another income property - the actual definition of "like-kind" is far more empowering in its flexibility.
What is important is the nature or character of property - not the grade, quality or use. Any real property held for investment or real property used in a trade or business can be exchanged for any other real property held for investment or real property used in a trade or business.
POTENTIAL "LIKE-KIND" PROPERTY EXCHANGES AND BENEFITS:
| Relinquished Property |
Exchanged Property |
Potential Benefit |
| Non-income producing land |
Triple net leased property |
Cash flow |
| High-equity property |
Highly leverage property |
Leverage/increased rate of return |
| Multiple rentals |
Single user commercial |
Management relief |
| Commercial property |
Industrial and apartments |
Diversification |
| Multiple property types |
Single property type |
Consolidation |
| Farm |
City property |
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