Of all the phrases in the 1031 world, "like-kind" is the one that trips up the most people, and it does its damage quietly. Investors talk themselves out of perfectly valid exchanges because they think the rule is far narrower than it is. So let us be blunt about what it actually means, and clear five myths out of the way.
The short version: for real estate, "like-kind" is extraordinarily broad. It refers to the nature of the property, real property held for investment or business, not its type, grade, or quality. An apartment building is like-kind to raw land. Raw land is like-kind to a retail strip center. A retail center is like-kind to a fractional DST interest in an industrial portfolio. The tax code is not asking whether the two properties resemble each other. It is asking whether both are real property you held for investment. Now the myths.
Myth 1: "It has to be the same kind of property"
This is the big one, and it is simply false. You can exchange a single-family rental for a share of an office building, a warehouse for farmland, a duplex for a DST interest in a medical portfolio. As long as both the relinquished and replacement are real property held for investment or productive use in a business, they are like-kind to each other. The investor who assumes they must trade "apartments for apartments" rules out most of their best options before they start.
Myth 2: "Personal property and other assets still qualify"
They used to. Before 2018, you could 1031 exchange equipment, vehicles, franchise licenses, even fine art. The Tax Cuts and Jobs Act ended that. Since then, Section 1031 applies to real property only. No equipment, no collectibles, no cryptocurrency, no business goodwill. If someone tells you they are planning to 1031 a non-real-estate asset, they are working from a pre-2018 playbook.
Myth 3: "US and foreign real estate are interchangeable"
They are not. Real property located in the United States is not like-kind to real property located outside the United States. You can exchange US property for other US property, and foreign property for other foreign property, but you cannot bridge the two. An investor selling a US rental cannot defer the gain into a villa abroad, no matter how much larger the villa is.
Myth 4: "I can exchange my primary residence"
Generally no. Section 1031 is for property held for investment or business use, not the home you live in. Your primary residence has its own tax break, the Section 121 exclusion, which is a different tool entirely. The gray area is vacation and second homes, which can qualify only if they meet a specific rental-and-use safe harbor. That is a topic worth its own discussion, and worth getting exactly right before you rely on it.
Myth 5: "It has to be a simultaneous, two-party swap"
The word "exchange" conjures an image of two owners trading deeds across a table. That almost never happens anymore. The modern exchange is a delayed exchange: you sell to one party, a Qualified Intermediary holds the proceeds, and you buy from an entirely different party within the 45-day and 180-day windows. No handshake swap required, and no need to find someone who wants your exact property and happens to own your exact replacement.
What genuinely does not qualify
Clearing up the myths cuts both ways, so here is the honest boundary. Property held primarily for resale does not qualify, which rules out most fix-and-flip and dealer inventory. Your primary residence does not qualify. US-to-foreign pairings do not qualify. And non-real-estate assets no longer qualify at all. Everything else in the wide world of US investment real estate is fair game, and that width is exactly what makes the 1031 exchange such a flexible tool. Your CPA determines how these rules apply to your specific property, and our job is making sure you are not leaving good options on the table because of a myth.
Common questions about like-kind property
Can I exchange raw land for a rental building?
Yes. Both are real property held for investment, so they are like-kind despite being very different property types. Raw land, rentals, commercial buildings, and fractional interests can all be exchanged for one another.
Can I do a 1031 exchange into a DST?
Yes. A Delaware Statutory Trust interest is treated as direct ownership of real property for tax purposes, so it qualifies as like-kind replacement property. DSTs are offered to accredited investors through private placement and carry their own risks, including illiquidity and loss of principal.
Does foreign real estate qualify for a 1031 exchange?
Only for other foreign real estate. US property and non-US property are not like-kind to each other, so you cannot exchange a US property for one abroad and defer the gain.
Can I still 1031 exchange equipment or other non-real-estate assets?
No. Since the 2018 tax law changes, Section 1031 applies only to real property. Personal property, vehicles, collectibles, and cryptocurrency no longer qualify.
Is my vacation home like-kind investment property?
Only if it meets a specific safe harbor around rental use and limited personal use. A purely personal second home that is never rented does not qualify. It is worth confirming the exact requirements before you count on it.