Like Kind Property: What Qualifies for a 1031 Exchange

Key takeaways

• "Like-kind" is about the nature of the property, not its quality. Raw land, a rental house, a warehouse and a hotel are generally all like-kind to each other, as long as they sit in the United States.
• Two tests decide most cases. The property must be real property under the tax rules, and you must hold it for investment or for use in a business, both before and after the exchange.
• Some things that come with real estate don't qualify. Furniture, equipment, livestock, business licenses, harvested crops and a buyer's promissory note are not real property, and receiving them can create taxable gain.
• Property held mainly for sale, such as a developer's lots or a flipper's houses, doesn't qualify. Neither does your main home or property outside the U.S.
• You can sell one property and buy two, or sell several and buy one. The deadlines run from the first sale, and the total value, cash and debt still have to line up.
• This guide is general education, not tax or legal advice. Confirm your facts with your CPA, attorney and qualified intermediary before you sell.

What is like-kind property?

Let me start with the plain idea, then add the rules one at a time.

A 1031 exchange is a tax rule named for Section 1031 of the Internal Revenue Code. It lets you sell investment real estate and buy other investment real estate without paying tax on your gain right away. The tax is deferred, not forgiven. My guide to the 1031 exchange rules and timeline covers the full process.

Like-kind property is the kind of property the rule allows on both sides of that trade. The law says no gain is recognized on the exchange of real property held for business or investment if it's "exchanged solely for real property of like kind," in the words of Section 1031(a)(1).

A few more terms will come up again and again.

• Relinquished property is the property you sell.
• Replacement property is the property you buy.
• Qualified replacement property is replacement property that meets every test: it's like-kind, you identify it on time, you receive it on time, and you hold it for investment or business use.
• Boot is anything you receive in the exchange that isn't like-kind property. Cash is boot. So is a note from the buyer, and so is furniture. Boot is generally taxable.

"Like-kind" means the same nature, not the same quality

People often assume "like-kind" means "the same type." It doesn't. A Treasury regulation, 26 CFR §1.1031(a)-1(b), says the words refer to "the nature or character of the property and not to its grade or quality."

For real estate, that's a very broad standard. The same regulation says it doesn't matter whether real estate is improved or unimproved. It gives examples that include trading city real estate for a ranch or farm, and trading improved real estate for unimproved real estate.

The IRS fact sheet on like-kind exchanges puts it simply. "Most real estate will be like-kind to other real estate," says IRS Fact Sheet 2008-18, published in 2008, before the 2018 change to real property only. It adds that "real property that is improved with a residential rental house is like-kind to vacant land."

So you don't have to trade an apartment building for another apartment building. You can trade it for land, a warehouse, a medical office or a share of a building through a Delaware statutory trust.

Why only real property since 2018

Before 2018, people could exchange equipment, vehicles, aircraft and artwork. The Tax Cuts and Jobs Act changed the word "property" to "real property" in Section 1031. That change applies to exchanges completed after December 31, 2017.

The 2025 tax law, often called the One Big Beautiful Bill Act, didn't change that. The current text of Section 1031 on Cornell's site still shows the 2017 law as its latest amendment. Tax law can change again, so check the current rules with your CPA when you plan a sale.

What qualifies for a 1031 exchange?

Two tests decide almost every question about what qualifies. The property must be real property. And you must hold it for productive use in a business or for investment. Both the property you sell and the property you buy have to pass both tests.

Test 1: It must be real property

The Treasury wrote a detailed definition after the 2017 change. Under 26 CFR §1.1031(a)-3, real property "means land and improvements to land, unsevered natural products of land, and water and air space superjacent to land."

Here is what each piece covers, in plain words.

Land. Raw land, farmland, ranch land and lots all count.

Improvements to land. Buildings count. So do "inherently permanent structures," which the regulation describes as anything that "is permanently affixed to real property and that will ordinarily remain affixed for an indefinite period of time." Its list includes paved parking areas, fences, railroad tracks, cell towers, oil and gas pipelines, and "grain storage bins and silos."

Structural components. These are the parts of a building, such as walls, wiring, plumbing and central heating and air conditioning. They count as real property along with the building.

Unsevered natural products. The regulation names "growing crops, plants, and timber." They count while they're still attached to the land. Once they're cut, picked or pulled out, they "cease to be real property."

Water and air space. Space above land can count. One of the regulation's examples says marina boat slips "are water space superjacent to land and thus are real property."

Certain rights in real estate. The regulation lists "Fee ownership; co-ownership; a leasehold; an option to acquire real property; an easement" among the interests that count. A leasehold is your right to use property under a lease. A separate rule says a leasehold "with 30 years or more to run" can be exchanged for real estate you own outright.

There's one more helpful rule. Property generally counts as real property for Section 1031 if it's real property under the law of the state or local area where it sits. That covers many unusual cases.

Test 2: It must be held for investment or business use

The second test is about how you use the property. Section 1031 covers real property "held for productive use in a trade or business or for investment." It doesn't cover property you hold for personal use or property you hold mainly to sell.

Here's what that means in practice.

• Held for investment means you own it to earn rent, to earn appreciation over time, or both. Raw land you hold for the long term counts.
• Held for business use means you use it in your own business. Your own warehouse, shop or farm counts.
• Held mainly for sale doesn't count. That's dealer property, which I cover below.
• Personal use doesn't count. That includes your main home and a vacation home you only use yourself.

The tax code sets no minimum holding period. What matters is your intent at the time of the exchange, and the IRS judges intent by what you actually did. A longer hold is stronger evidence of investment intent. A property you buy and resell within weeks is hard to call an investment.

The test also applies to the property you buy. If you buy a rental and move into it right away, or hand it to your kids to live in, the replacement may fail the test.

What doesn't qualify for a 1031 exchange?

Most failures come from a short list. Here it is in one place.

Property outside the United States

Section 1031(h) says real property in the United States and real property outside it "are not property of a like kind." A rental in Denver can be swapped for a warehouse in Ohio. It can't be swapped for an apartment in Mexico.

Property held primarily for sale

Section 1031(a)(2) says the rule "shall not apply to any exchange of real property held primarily for sale." This covers dealer property, such as a developer's subdivided lots or a flipper's houses. More on that in its own section below.

Your home

A primary residence is held for personal use, not investment. A vacation home you never rent is the same. The IRS fact sheet says property "used primarily for personal use, like a primary residence or a second home or vacation home" doesn't qualify.

There are ways to combine the home-sale exclusion with an exchange when a property was partly home and partly rental. I cover those in my guide to 1031 exchanges and a primary residence.

Things that aren't real property

The regulation is clear that some assets aren't real property, even when they're tied to real estate.

• Stock, bonds and notes. The regulation lists "Stock not described in paragraph (a)(5)(i) of this section, bonds, or notes" as not real property.
• Partnership interests. The IRS fact sheet lists "Partnership interests" among property that doesn't qualify. If you own real estate through a partnership or multi-member LLC, see my guide to 1031 exchanges for partnerships, LLCs and trusts.
• Business licenses. The regulation says "a license or permit to engage in or operate a business on real property is not real property." One of its examples finds a casino license isn't real property, even though the casino building is.
• Furniture, fixtures and equipment that can be moved. Hotel beds, restaurant ovens, office furniture and tractors are personal property.
• Severed natural products. Harvested crops, cut timber and extracted minerals stop being real property once they're removed.

Improvements without land

The IRS fact sheet notes that "improvements that are conveyed without land are not of like kind to land." That can matter when someone builds on land they don't own. It's a narrow area, and your tax attorney should review it before you rely on it.

Like-kind property examples by property type

Here is how the rules play out for common kinds of property. This table is a general guide. The facts of your own deal can change the answer.

Raw land and vacant lots

Land held for investment is one of the cleanest cases. It's real property, and improved and unimproved real estate are like-kind. You can sell a vacant lot and buy an apartment building. You can also sell a building and buy land, as long as you'll hold the land for investment.

The risk with land is drift into dealer status. Holding land and waiting for it to grow in value is investing. Rezoning it, splitting it into lots, putting in streets and selling lots one by one starts to look like a business of selling land. I cover that line below.

Farmland and ranches

Farmland and ranch land are real property. So are the parts that stay attached to the land. That includes growing crops, orchards, timber, fences and permanent structures. The regulation's list of permanent structures expressly includes "grain storage bins and silos."

Several farm assets are not real property. Tractors, combines and irrigation equipment that can be moved are personal property. So are livestock and crops already harvested. Since 2018, those assets can't be exchanged under Section 1031. If they're sold with the farm, their share of the price is generally a taxable sale.

A farm sale usually needs a clear price allocation in the contract. Write down how much is for land and permanent improvements and how much is for equipment, livestock and stored crops. Your CPA will use that split, and the IRS can question an allocation that doesn't match value.

Water can be a gray area. The regulation counts certain shares in a mutual ditch, reservoir or irrigation company as real property under stated conditions. Water rights themselves depend heavily on state law. If water rights are a big part of your value, ask your attorney how they're classified where your farm sits.

Hotels and hospitality property

A hotel building and its land are real property. The regulation lists hotels and motels among buildings. The hard part of a hotel exchange is everything else that comes with the sale.

Furniture, fixtures and equipment, often called FF&E, are personal property. That includes beds, linens, televisions, kitchen gear and most lobby furniture. The part of your price that pays for FF&E is a taxable sale, not part of the exchange.

Licenses and franchise rights aren't real property either. A liquor license or a brand franchise is a right to run a business, and the regulation says a license "to engage in or operate a business on real property is not real property."

Goodwill and the business itself aren't real property. If you sell an operating hotel, the buyer may be paying for its booking history and staff, too.

When you buy a replacement hotel, the same issue flips around. The regulations let small amounts of incidental personal property ride along with real estate without breaking the exchange's safe harbors. A safe harbor is a set of rules that, if you follow them, the IRS accepts. But the furniture is still not like-kind. If you pay for it with exchange money, its value is generally taxable boot. I walk through that with numbers below.

Industrial property and warehouses

Industrial buildings are real property. So are their structural components, such as wiring, plumbing and HVAC. Some heavy installations can count too, if they're truly permanent.

Movable machinery doesn't count. Forklifts, racking you can unbolt and move, and production equipment are generally personal property. The regulation lists factors for close cases. They include how the item is attached, whether it's designed to be removed, how much damage removal would cause, and how long it's expected to stay.

If you own both the building and the operating business, separate the two in the sale. The building can be part of an exchange. The equipment and the business generally can't.

Office, retail and other commercial property

Office buildings, shopping centers, medical office buildings and single-tenant net lease stores are all real property. A net lease is a lease where the tenant pays some or all of the property's taxes, insurance and upkeep. Selling one type and buying another is common and allowed.

Two details deserve a look. First, if you own a leasehold rather than the land, count how many years remain. A leasehold "with 30 years or more to run" can be exchanged for owned real estate. Second, check who owns the improvements. A building your tenant owns on your land isn't yours to exchange.

Apartments and rental houses

Multifamily property is real property, and it's like-kind to every other kind of U.S. investment real estate. The watch-outs are personal and family use. If a relative lives in a unit rent-free, or you use a unit as a getaway, that use cuts against investment intent.

Furnished rentals add a small personal-property issue. The beds and sofas in a furnished unit aren't real property. On most sales, they're a small part of the price, but they should still be allocated.

DST interests

A Delaware statutory trust, or DST, is a trust that owns real estate and sells interests in it to investors. In IRS Revenue Ruling 2004-86, the IRS said "A taxpayer may exchange real property for an interest in the Delaware statutory trust" described in the ruling, "if the other requirements of § 1031 are satisfied."

So a properly structured DST interest can qualify as replacement property. That makes DSTs useful when you want to step back from managing property, or when you need to place a set amount of exchange money. My complete guide to Delaware statutory trusts explains how they work.

DST interests are securities, though. They're generally sold only to accredited investors, meaning people who meet SEC income or net worth tests, through a private placement memorandum, or PPM, which is the legal document that describes the offering and its risks. They're illiquid, you have no control over the property, distributions are not guaranteed, and you can lose your entire investment.

Mineral and royalty interests

Minerals still in the ground are real property under the regulation. They stop being real property once they're extracted. Whether a particular mineral, royalty or working interest counts as real property for a 1031 exchange depends on what the interest is and on the law of the state where it sits.

Some exchange offerings hold mineral and royalty interests. If you're considering one, ask how the offering's tax counsel concluded the interests qualify. Then have your own CPA review it.

When is real estate dealer property?

This is one of the most fact-heavy areas of the 1031 rules. There's no bright-line test in the statute. The question is whether you held the property "primarily for sale" or for investment.

The like-kind regulation gives one anchor. Under 26 CFR §1.1031(a)-1(b), "Unproductive real estate held by one other than a dealer for future use or future realization of the increment in value" is held for investment, not primarily for sale. In plain terms, a non-dealer who holds land and waits for it to grow in value is investing.

Dealer property is real estate you hold mainly to sell to customers in the ordinary course of a business. Think of a homebuilder's finished houses, a developer's subdivided lots, or houses a flipper buys, fixes and resells. Dealer property is treated like inventory, and it can't be part of a 1031 exchange.

Courts and the IRS look at the facts as a whole. Factors that often come up include these.

• Your purpose when you bought the property and when you sold it
• How often you buy and sell real estate
• How long you held this property
• How much work you did to develop it, such as rezoning, grading, building roads or splitting it into lots
• How you marketed it, such as advertising lots to the public or using sales staff
• How the income shows up on your tax returns, such as ordinary business income from sales

No one factor decides it. A developer can hold some land for investment and other land for sale. When that's the plan, it helps to keep the two clearly separate in your records, and sometimes in separate entities. That's tax-attorney work, and it should happen when you buy, not when you sell.

What about land you plan to develop?

Owning land for years and then selling it to a developer usually looks like investing. Developing it yourself and selling finished lots usually looks like dealing. The hard cases sit in the middle. One example is land you rezone, entitle and then sell in one piece.

If you're in that middle ground, talk with your attorney before you start the entitlement work, meaning the process of getting government approvals to develop. The structure you choose early can matter more than anything you do at closing.

Can you do a 1031 exchange across state lines?

Yes. U.S. real property is like-kind to other U.S. real property, wherever it sits. You can sell a rental in California and buy a warehouse in Texas. You can sell farmland in Iowa and buy DST interests that own property in several states.

The federal rule only draws one geographic line, which is the border of the United States. State tax rules are a separate layer, and a few of them follow you after you leave.

Some states track your deferred gain

California is a well-known example. Under the instructions for Form FTB 3840, all taxpayers who exchange California real property for like-kind property outside California must file. The filing continues "for each subsequent taxable year, generally until the California sourced deferred gain or loss is recognized."

In plain terms, California keeps track of the gain it didn't tax. When you finally sell the out-of-state property in a taxable sale, California expects its share. Other states have their own rules, so ask your CPA about the state you're leaving.

Your new state may tax the income

If you buy in a new state, the rental income from that property may be taxed there. That can mean a new state tax return each year. DST interests can do the same thing, because you're treated as owning a share of the real estate in the state where it sits.

Can you exchange one property for two, or several for one?

Yes. Section 1031 doesn't require a one-for-one swap. The IRS fact sheet says exchanges "allow you to dispose of property and subsequently acquire one or more other like-kind replacement properties."

Selling one property and buying two or more

Splitting one sale into two or more purchases is common. People do it to spread risk across markets or property types. They also do it to buy one property they'll manage and put the rest into something passive.

The rules still apply to the whole exchange.

• Identification. You must name every replacement in writing within 45 days. There are limits on how many properties, or how much total value, you can identify. My guide to the 1031 identification rules explains the three-property and 200% rules.
• Value. To defer all the gain, the combined value of everything you buy should be at least your net sale price.
• Cash. All the net cash from your sale should go into the replacements.
• Debt. The debt on your replacements, plus any cash you add, should at least equal the debt you paid off.
• Timing. You must close on each replacement within 180 days or your tax return due date (with extensions) for the year of the sale, whichever comes first.

Selling two or more properties and buying one

You can also combine sales. Say you sell two rental houses and buy one small apartment building. That can work in one exchange or in two.

The timing catches people. When you sell more than one property in a single exchange, both deadlines run from the first sale. The regulation at 26 CFR §1.1031(k)-1 ties them to "the earliest date on which any of the properties are transferred." If your second sale closes five weeks after the first, you may have only 10 days left to identify.

If the sales are far apart, two separate exchanges can make more sense. Each would have its own 45-day and 180-day clocks. Your qualified intermediary, or QI, the company that holds your sale money during the exchange, can set it up either way.

How the tax math works with several properties

When several properties are involved, the gain math gets more detailed. A Treasury regulation on multiple-property exchanges, 26 CFR §1.1031(j)-1, groups properties and nets the debts you take on against the debts you're relieved of. The IRS instructions for Form 8824 have a separate section for "Multi-Asset Exchanges."

You don't need to master that. Your CPA will. What you need is a clean record of what you sold, what you bought and how each price was allocated.

Can you offer seller financing in a 1031 exchange?

You can, but the note creates a problem you need to plan for. When you finance part of the price for your buyer, you receive a promissory note, which is the buyer's written promise to pay you over time. A note isn't real property. The regulation lists "notes" among assets that aren't real property, and the IRS fact sheet lists "Stocks, bonds, or notes" as property that doesn't qualify.

So a seller note is boot. If you end up holding it, its value is generally taxable gain, up to your total gain.

There is some relief on timing. Under Section 453(f)(6), the installment method can work alongside a like-kind exchange. The law says "payment" in that setting doesn't include property you're allowed to receive without recognizing gain. In plain terms, the gain tied to the note may be reported as the buyer pays you, instead of all at once. Your CPA will check whether that applies to you.

Here are the common ways people handle a seller note, in general terms.

1. Avoid it. Ask the buyer to get bank financing so all the sale money goes to your QI. This is the simplest path.
2. Accept it as boot. Take the note, pay tax on that part as payments come in if the installment method applies, and defer the rest through the exchange.
3. Ask about the note before you sign. Some exchange agreements address what happens to a buyer's note during the exchange. The rules are technical, so ask your QI and CPA whether any option fits your sale.

Whatever you choose, settle it with your CPA and QI before closing. Don't improvise it at the escrow table.

Seller financing and installment sales also come up as options for owners who don't want to exchange at all. My guide to 1031 exchange alternatives compares those paths.

What is qualified replacement property?

Pulling it together, a replacement property counts only when it passes every test below. Miss one, and it's treated as property that "is not like-kind property," which is the phrase Section 1031(a)(3) uses.

That last row is worth a second look. Buying less than you sold doesn't break the exchange. It just means part of your gain is taxable. My guide to partial exchanges and boot shows how that's figured.

How do you check whether your property qualifies, step by step?

Here is a practical order of work. Start it before you list your property, not after you accept an offer.

Step 1: Write down how you've used the property

List when you bought it and how you've used it each year. Note any personal or family use. Gather your leases, rent records and tax returns that show the property on Schedule E, the tax form for rental income, or on a business return. This is your evidence of investment or business use.

Step 2: List everything included in the sale

Separate the land and buildings from everything else. That includes furniture, equipment, livestock, stored crops, licenses, goodwill and any notes. Anything on the second list is not part of the exchange.

Step 3: Agree on a price allocation

Put the allocation in your purchase contract. The buyer and seller generally should report the same numbers. Base it on value, not on what lowers your tax.

Step 4: Check for dealer issues

Ask yourself honestly whether you've been selling real estate as a business. If you've subdivided, developed or marketed this property for sale, talk to a tax attorney now.

Step 5: Confirm the ownership

The taxpayer that sells must be the taxpayer that buys. If the property is in a partnership, multi-member LLC, corporation or trust, sort out the ownership before you sign a listing agreement.

Step 6: Line up your exchange intermediary before closing

Your QI holds your sale money during the exchange, so you never touch it. You must sign the exchange agreement before your sale closes. My guide to choosing a qualified intermediary covers the questions to ask.

Step 7: Screen each replacement against the tests

For every replacement you consider, check that it's U.S. real property and that you'll hold it for investment or business use. Ask what personal property is included and how it will be priced. For a DST, read the PPM's tax section and the sponsor's legal opinion summary.

Step 8: Identify, close and report

Identify your replacements in writing within 45 days. Close within 180 days or your tax return due date (with extensions) for the year of the sale, whichever comes first. Report the exchange on your tax return for the year of the sale, and keep every document.

Worked example: selling a hotel with furniture and equipment

This is a hypothetical example with simple round numbers. It doesn't describe any real client, property or offering. The numbers aren't typical of any offering. Your CPA should run your real figures.

The sale

Say you own a small hotel and decide to sell. The buyer pays $8,000,000. Your adjusted basis is roughly what you paid, plus improvements, minus depreciation you've taken. The contract allocates the price like this:

To keep it simple, assume there's no loan and no selling cost.

What the exchange can cover

Only the land and building are like-kind real property. So only the $4,400,000 gain on them can be deferred through the exchange.

The $600,000 paid for FF&E is a sale of personal property. The $500,000 gain on it is generally taxable this year. Because you took depreciation on that equipment, much of the gain may be taxed at ordinary income rates. Your CPA will figure the exact amount.

The replacement

Now say you buy an apartment building for $7,500,000. It comes with only a small amount of furniture in the leasing office, and the contract assigns no value to it. You use the $7,400,000 from the real property sale and add $100,000 of your own cash.

You bought more real property than you sold, and you reinvested all the real property proceeds. So the $4,400,000 gain on the real estate is deferred.

Your basis in the new building is $7,500,000 minus the $4,400,000 deferred gain, or $3,100,000. That works out to your old $3,000,000 real estate basis plus the $100,000 you added.

A version that goes wrong

Suppose instead you buy another hotel for $7,400,000. The contract says $6,900,000 is for real estate and $500,000 is for FF&E. You pay the full $7,400,000 with exchange money.

The $500,000 of furniture isn't like-kind. It's generally boot. So roughly $500,000 of your real estate gain becomes taxable, even though you reinvested every dollar. You also bought only $6,900,000 of real property after selling $7,400,000.

One common fix is to buy the replacement FF&E with your own cash, outside the exchange. Another is to buy more real property so your total real estate purchase covers what you sold. Ask your CPA and QI which approach fits, before you sign the purchase contract.

Worked example: trading one property for two

This is also a hypothetical with round numbers. It doesn't describe any real client, property or offering. The 40% loan-to-value (the loan divided by the property's value) used here is only for illustration and isn't typical of any offering.

The sale

Say you sell a fourplex for $2,000,000. You pay $100,000 in selling costs, so your net sale price is $1,900,000. Your buyer pays off your $600,000 loan. That leaves $1,300,000 of cash with your QI.

To defer all your gain, you need three things:

1. At least $1,900,000 of replacement real property
2. All $1,300,000 of cash reinvested
3. At least $600,000 of new debt, or added cash to make up any shortfall

Plan A: a warehouse and an all-cash DST

You buy a warehouse for $1,200,000, using $700,000 of exchange cash and a $500,000 loan. You put the other $600,000 into a DST interest with no debt.

Your total replacement value is $1,800,000. That's $100,000 short of $1,900,000. Your new debt is $500,000, also $100,000 short of the $600,000 you paid off. You'd likely owe tax on about $100,000 of boot.

Plan B: a warehouse and a leveraged DST

You buy the same warehouse. This time you put $600,000 into a DST interest with a 40% loan-to-value, or LTV. LTV is the loan divided by the property's value. Your $600,000 buys a $1,000,000 share of the property, carrying a $400,000 share of the DST's loan.

Plan B meets all three targets. A third option would be adding $100,000 of your own cash to Plan A.

Debt isn't free. A leveraged DST magnifies losses as well as gains, and a lender can foreclose if the property struggles. Don't choose a property only to fix the boot math. Choose it because it fits your goals, then check the math.

In either plan, you'd identify both properties within 45 days. Naming a third property as a backup is allowed under the three-property rule. A backup only helps if it was identified in writing within the 45 days.

Mistakes to avoid with like-kind property

These mistakes come up often, and each one is avoidable with planning.

1. Assuming "like-kind" means "the same type." It doesn't. You can trade land for apartments. People sometimes limit their search for no reason.
2. Forgetting the personal property. Furniture, equipment, livestock and licenses aren't real property. Allocate them in the contract and plan for the tax.
3. Buying furniture with exchange money. Personal property you buy as part of a replacement is generally boot. Pay for it separately if you can.
4. Selling property you treated as inventory. If you've been subdividing and selling lots, the property may be dealer property. That can't be exchanged.
5. Moving into the replacement. Personal use right after the exchange can undo the investment-use test.
6. Reaching across the border. U.S. and foreign real estate aren't like-kind.
7. Taking a seller note without a plan. A note isn't real property. Decide how to handle it before closing, with your CPA and QI.
8. Missing the earliest-sale clock. With several sales in one exchange, the 45 days start at the first closing.
9. Ignoring state rules. Leaving a state like California can mean an annual filing for years.
10. Treating a short leasehold as real estate you own. A leasehold needs 30 or more years remaining to be swapped for owned real estate.
11. Choosing a replacement to fit the tax rules alone. A bad property bought to save tax can cost more than the tax.

Risks and limits to keep in mind

Getting the property rules wrong has costs, apart from any property you buy.

• Failure risk. If a property doesn't qualify, or a deadline is missed, part or all of your gain can become taxable.
• Allocation risk. The IRS can challenge a price allocation that understates personal property.
• Dealer risk. Facts you can't change at the last minute can turn investment property into dealer property.
• Tax-law risk. Congress can change Section 1031, tax rates or the rules on inherited property.
• Carryover basis. Your replacement keeps your old, lower basis. Your future depreciation is smaller.

If you use DST interests as replacement property, you take on the risks of a security, too.

• Illiquidity. DST interests generally can't be sold until the property sells. The SEC's bulletin on private placements says you "should be prepared to hold the securities indefinitely."
• Loss of principal. You can lose some or all of your investment.
• Distributions are not guaranteed. They can be reduced or stopped.
• Limited control. You have no vote on leasing, financing or the sale.
• Fees and debt. Fees reduce returns, and debt magnifies losses.
• Investor limits. Most DSTs are offered only to accredited investors.

How I help investors with replacement property

Knowing what qualifies is half of an exchange. The other half is choosing what to buy, and that's the part my team and I help with. My background includes acquisitions, management and development work at ValueRock Realty Partners, Faris Lee Investments, Westport Capital Partners and Arbor Bay Capital Partners.

If you're weighing replacement property, we begin with an introductory call to learn your sale price, the debt you need to replace and your deadline. Next, we look at DST offerings side by side, and I give you my reasons for considering each one, what I like about it and where I have reservations. My current DST offerings are listed on the site. Securities are offered through Aurora Securities, Inc., member FINRA/SIPC, and Baker 1031 Investments is independent of Aurora.

Your CPA, attorney and qualified intermediary each have a role I don't fill, and I work alongside them.

What my data shows

The rules above say almost any U.S. investment real estate is like-kind to any other. So the range of replacement property you can choose from is wide. Here's what my offering records as of October 2026 show about DST offerings: 76 DST offerings from 38 sponsors. These figures describe the offerings I track. They aren't a forecast or a promise about any future offering.

Property types span the like-kind range

All of these are kinds of real estate that can be like-kind to a rental house, a farm or a vacant lot you sell. The DST interest itself still has to meet Revenue Ruling 2004-86 and the other 1031 rules, and you have to meet the offering's investor rules.

Locations cross state lines

In my offering records as of October 2026, locations span 33 states. The most common are Florida (14), Texas (13), North Carolina (8) and Georgia (7). That matters for the state-tax point above. Owning a DST interest in another state can bring that state's tax rules, and your old state's rules may follow your deferred gain.

Royalty programs show where the edges are

In my offering records as of October 2026, the net lease group includes energy royalty programs. These hold mineral and royalty interests. For example, one portfolio holds 14 royalty properties with 27 producing wells in Oklahoma's Anadarko Basin and Texas's Permian Basin. Wells are run by third-party operators, and the owner receives a share of production revenue without paying drilling or operating costs.

Programs like these sit at the edge of the real property rules, where the type of interest and state law matter. Read the offering's tax disclosure closely, and have your CPA confirm it.

Minimums help when you split one sale into several purchases

In my offering records as of October 2026, the median minimum investment is $100,000. Minimums range from $25,000 to $500,000, and 21 offerings (28%) start at $25,000. Lower minimums can help when you're splitting one sale into several replacement properties and need to place a specific amount.

Frequently asked questions

What is considered like-kind property for a 1031 exchange?

Real property in the United States that you hold for investment or for use in a business. Land, rentals, commercial buildings, farms, hotels and certain long-term leaseholds are generally like-kind to each other. Personal property, your home and property held mainly for sale don't qualify.

Does like-kind mean I have to buy the same type of property?

No. Like-kind refers to the nature of the property, not its grade or quality. You can sell raw land and buy an apartment building, or sell a rental house and buy a warehouse.

Can I exchange a rental house for land?

Yes, if you hold both for investment. The IRS fact sheet gives this as an example, saying a lot improved with a residential rental house is like-kind to vacant land. Make sure the land isn't something you plan to develop and sell as a dealer.

Is farm equipment like-kind property?

No, not since 2018. Tractors, combines, livestock and harvested crops are personal property, so they can't be part of a 1031 exchange. Farmland, growing crops, fences, silos and other permanent structures are real property.

Can I do a 1031 exchange on a hotel?

Yes, for the land and building. The furniture, equipment, licenses and business goodwill aren't real property, so their share of the price is generally taxable. If your replacement includes personal property bought with exchange money, its value is generally taxable boot.

Can a developer use a 1031 exchange?

Only for property held for investment or business use. Lots and houses held mainly for sale are dealer property and don't qualify. A developer who also holds some land for the long term should keep those holdings clearly separate and get tax advice early.

Can I sell one property and buy two with a 1031 exchange?

Yes. You can buy two or more replacements in one exchange, as long as you identify them within 45 days and close in time. To defer all the gain, the combined value, cash and debt must meet your targets.

Can I exchange U.S. property for property in another country?

No. Section 1031(h) says American and foreign real property aren't like-kind. You could exchange foreign property for other foreign property, but not across the border.

Does a promissory note from my buyer count as like-kind property?

No. A note isn't real property, so it's generally taxable boot. The installment method may let you report that part of the gain as payments come in, so plan it with your CPA before closing.

Is a DST interest like-kind to the rental I'm selling?

It can be. Revenue Ruling 2004-86 says real property can be exchanged for an interest in a properly structured Delaware statutory trust if the other 1031 rules are met. DST interests are securities with real risks, and most are available only to accredited investors.

Is a long-term ground lease like-kind to owning land?

It can be. A Treasury regulation says a leasehold with 30 years or more to run can be exchanged for real estate. Count the remaining term carefully, and ask your attorney how renewal options affect it.

Before you act

This guide reflects federal law and IRS guidance as of October 2026. Whether an asset is real property, and whether you held it for investment, depends on your facts. This is general education, not tax, legal or investment advice, so have your CPA, your attorney and your QI review the property, the price allocation and your exchange plan before you sign a listing or purchase contract. DST interests are offered only through a private placement memorandum, are illiquid, and can lose value, including your entire investment.

Sources

• 26 U.S.C. §1031, Exchange of real property held for productive use or investment (Cornell LII)
• 26 CFR §1.1031(a)-1, Property held for productive use in trade or business or for investment (Cornell LII)
• 26 CFR §1.1031(a)-3, Definition of real property (Cornell LII)
• 26 CFR §1.1031(k)-1, Treatment of deferred exchanges (Cornell LII)
• 26 CFR §1.1031(j)-1, Exchanges of multiple properties (Cornell LII)
• 26 U.S.C. §453, Installment method (Cornell LII)
• IRS, Instructions for Form 8824 (2025)
• IRS Fact Sheet FS-2008-18, Like-Kind Exchanges Under IRC Code Section 1031
• IRS Revenue Ruling 2004-86
• California Franchise Tax Board, 2025 Instructions for Form FTB 3840
• Investor.gov, Private Placements under Regulation D