Like Kind Property Explained

Like kind property is the foundational requirement of Section 1031. Since 2018, the like kind exchange rules apply only to real property, and personal property such as equipment or vehicles no longer qualifies. Within real property, the like kind standard is broad. It refers to the nature or character of the property as real estate, not its grade, quality, or use. A San Francisco, CA investor selling a multifamily building can generally exchange into raw land, a retail center, an industrial building, or a net lease property in another state, because all are considered like kind to one another as long as both the relinquished and replacement property are held for investment or use in a trade or business.

What Qualifies and What Does Not

Property held primarily for personal use, such as a primary residence or a vacation home used mainly by the owner, generally does not qualify for 1031 treatment. Property held for sale, such as a property purchased specifically to renovate and resell, is considered inventory rather than investment property and also does not qualify. Beneficial interests in a Delaware Statutory Trust, structured to meet the requirements of Revenue Ruling 2004 to 86, can qualify as like kind real property for exchange purposes, though these interests are generally securities. A Delaware Statutory Trust or tenancy in common interest may be a security. We do not sell securities. We provide introductions to licensed providers only.

Investment intent matters more than the physical form of the property. A San Francisco, CA condominium held as a long term rental generally qualifies, while the same condominium used exclusively as the owner's personal residence generally does not, unless it also meets specific safe harbor rental use tests. We help investors document investment intent, including lease history, property management records, and rental income reporting, to support the qualifying use of both the relinquished and replacement property.

Mixed Use and Partial Qualification

Some properties present mixed use, such as a duplex where the investor lives in one unit and rents the other, or raw land partially used personally and partially held for investment. In these cases, only the investment portion of the property is generally eligible for exchange treatment, and the personal use portion must be separated out of the transaction. We review property use history with investors to determine which portion of a San Francisco, CA property is eligible before it goes to market, since misclassifying a mixed use property can jeopardize the entire exchange.

Because the definition of like kind real property is broad, San Francisco, CA investors have significant flexibility to diversify out of a single high value property into multiple smaller replacement properties, move into different property types entirely, or acquire property outside California. We help investors confirm that a specific replacement property candidate meets the like kind and investment intent standards before it is included in the forty-five day written identification, since correcting a disqualifying issue after identification is far more difficult than catching it beforehand.