What is “Like-Kind” Property in a 1031 Exchange?
The properties involved in a 1031 Exchange must be of “like-kind” and understanding this definition can help California investors maximize the benefits of their exchange. By knowing which properties qualify, investors can strategically plan their real estate transactions to defer capital gains taxes and reinvest the full proceeds into new properties.
In the context of a 1031 Exchange, “like-kind” refers to the nature or character of the property rather than its grade or quality. Under the Internal Revenue Code (IRC) Section 1031, like-kind is defined as properties that are of the same nature, character, or class, even if they differ in grade or quality. Additionally, both properties must be used for business or held as an investment. Property used primarily for personal use does not qualify.
This broad definition allows for a wide range of California real estate properties to qualify for a 1031 Exchange, provided they are held for investment or used in a trade or business. For example, a Sacramento rental house can be exchanged for a multifamily property in another state, or for a fractional interest in a Delaware Statutory Trust.
Learn more about what qualifies for like-kind exchange treatment →
At Legacy Investments & Real Estate, we guide real estate investors through the 1031 Exchange process, helping identify and secure replacement properties that align with the legacy they want their investments to build. Give our experienced team a call to get started.
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There are material risks associated with investing in private placements, Delaware Statutory Trusts (“DSTs”) and real estate securities including the potential loss of the entire investment principal, illiquidity, tenant vacancies impacting income and revenue, general and real estate market conditions, lack of operating history, interest rate risks, competition, including the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and investors should read the PPM carefully before investing paying special attention to the risk section. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation. Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Legacy Investments & Real Estate is independent of CIS and CAM.