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Like Kind Property Explained
A procedural explainer on what like kind means for real property exchanges.
What This Includes
Like kind property is the foundational requirement of a 1031 exchange, and the rules changed significantly with the Tax Cuts and Jobs Act of 2017. Since 2018, Section 1031 applies only to real property, meaning exchanges of personal property such as equipment, vehicles, or business assets no longer qualify for tax deferral, even if they were exchanged alongside real estate. For Albuquerque, NM investors, this makes it important to separate the real property portion of a transaction from any personal property or fixtures included in the sale price.
Within real property, the definition of like kind is broad. Real property is generally considered like kind to other real property regardless of grade, quality, or type, as long as both the relinquished property and the replacement property are held for productive use in a trade or business or for investment. This means raw land can be exchanged for an improved commercial building, a retail property can be exchanged for an industrial property, and a multifamily property can be exchanged for a single tenant net lease property, all within the like kind standard.
What disqualifies property from like kind treatment is generally the use, not the type. A personal residence does not qualify because it is not held for business or investment use, unless it meets specific business use thresholds, such as being rented out for a minimum period. Property held primarily for sale, such as a builder's inventory or a fix and flip property held by a dealer, also does not qualify, because dealer property is treated as inventory rather than an investment asset.
We help Albuquerque, NM investors confirm that both the relinquished property and any candidate replacement property meet the trade, business, or investment use standard, separate real property value from any personal property components in a purchase contract, and document the qualifying use history of a property when that history may be questioned.
What We Deliver
- Review of relinquished property use history against the trade, business, or investment standard
- Review of candidate replacement properties for like kind qualification
- Separation of real property value from personal property components in a purchase contract
- Evaluation of dealer property risk for frequently bought and sold assets
- Evaluation of qualifying rental history for a former personal residence
- Coordination with tax advisors on close like kind qualification questions
- Documentation support for demonstrating business or investment use
- Guidance on selecting replacement property types nationwide
Common Situations
FAQs about Like Kind Property Explained
Does like kind mean the properties have to be the same type?
No. Like kind for real property is a broad standard. Raw land, retail buildings, industrial buildings, and multifamily properties can all be like kind to one another, as long as both properties are held for business or investment use. We help Albuquerque, NM investors confirm qualifying use rather than worry about matching property type.
Can I still exchange business equipment under Section 1031?
No. Since the Tax Cuts and Jobs Act of 2017, Section 1031 only applies to real property. Personal property such as equipment, vehicles, and other business assets no longer qualifies for like kind exchange treatment. We help Albuquerque, NM investors separate real property value from personal property in a transaction.
Does my personal residence qualify as like kind property?
Generally no, unless the property meets specific business or investment use requirements, such as being rented out for a qualifying period before the exchange. A primary residence used only for personal purposes does not qualify. We help Albuquerque, NM investors evaluate whether a property's use history supports like kind treatment.
Can I exchange land in Albuquerque for a building somewhere else in the country?
Yes. Like kind real property can be located anywhere in the United States. Geographic location does not affect whether two properties are like kind to each other, although it may affect investment considerations. We help Albuquerque, NM investors evaluate replacement property nationwide.
What about property held by a dealer or flipper?
Property held primarily for sale to customers, such as a builder's inventory or a property acquired specifically to resell quickly, is generally treated as dealer property and does not qualify for like kind exchange treatment. We help Albuquerque, NM investors distinguish investment holdings from dealer inventory.
Who decides whether my property qualifies as like kind?
Ultimately, qualification depends on the facts of ownership and use, and is evaluated under Internal Revenue Code Section 1031 and related guidance. We help Albuquerque, NM investors review the use history and documentation of a property, and we coordinate with tax advisors on close judgment calls.
Compliance and Limits
Educational content only. Not tax, legal, or investment advice. Like kind property requirements are defined under Internal Revenue Code Section 1031 as amended by the Tax Cuts and Jobs Act of 2017. New Mexico imposes a graduated state income tax on capital gains that are not deferred through a qualifying exchange. Consult with a Qualified Intermediary and a qualified tax advisor before making exchange decisions.
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