The short answer
Generally yes, in both directions. Reg. section 1.1031(a)-3 lists 'an easement' and 'land development rights' among intangible interests that are real property, and defines real property to include 'air space superjacent to land'. The IRS has ruled privately that a perpetual conservation easement was like kind to a fee ranch and that transferable development rights could be replacement property for a fee interest, both resting on state law treating the right as real property. You must sell the right for value, not donate it, and hold it, and what you buy, for business or investment.
At a glance
| Easements | Listed by name as real property in the 1031 regulations |
|---|---|
| Development rights | Listed by name as real property in the same paragraph |
| Air rights | Air space superjacent to land is part of the definition of real property |
| Key test in the rulings | Perpetual duration and real property status under state law |
| Donated easement | A charitable contribution under section 170(h), not an exchange |
| Residence carve-out | Gain on the part of the land used as a home is not deferred |
| Private rulings | Binding only for the taxpayer who asked; not precedent |
The regulation treats these rights as real property, so the like-kind question is mostly answered
Since 2018, section 1031 covers only real property. The definition in Reg. section 1.1031(a)-3(a)(1) starts with land, improvements and 'water and air space superjacent to land', and paragraph (a)(5)(i) adds intangible interests including 'an easement' and 'land development rights'.
Similar rights qualify too if the right 'derives its value from real property or an interest in real property and is inseparable from that real property'. That sentence is what carries rights with unusual names, such as density bonuses and transferable floor area, into the definition.
Because like kind 'has reference to the nature or character of the property and not to its grade or quality' under Reg. section 1.1031(a)-1(b), a qualifying right is like kind to a fee in land, a building or a trust interest in real estate.
Selling a conservation easement can start an exchange, but donating one cannot
In PLR 200201007, ranch co-owners conveyed a perpetual conservation easement to a charity in exchange for the fee title to another ranch. The IRS ruled the exchange qualified, citing Rev. Rul. 72-549, which held a permanent power-line easement like kind to improved real estate, and Rev. Rul. 55-749 on perpetual water rights. The state statute made the easement 'perpetual in duration' and 'an interest in real property'.
The same letter carved out the homes: the owners had to recognize gain attributable to 'that portion of Old Ranch used for residential purposes'. Expect the same split if your house sits on the eased acreage.
A donation is a different transaction. A gift of 'a restriction (granted in perpetuity) on the use which may be made of the real property' is a qualified conservation contribution under section 170(h), a deduction rather than a sale, so there are no proceeds to exchange. How to apportion basis on a partial sale is covered on water rights and easements.
Air rights and transferable development rights work as either side of the exchange
In PLR 200805012, a corporation sold a fee parcel through an intermediary and used the cash to buy development rights it then recorded against a lot it already owned. The IRS ruled the rights like kind to the fee because the state tax statute defined an interest in real property to include 'development rights, air space and air rights', and the city's rights were 'as-of-right and not discretionary'.
The letter also found it immaterial that the rights attached to land the taxpayer already owned, relying on Rev. Rul. 68-394, where a leasehold bought on the taxpayer's own land was valid replacement property. The ruling notes the rights were recorded and subject to transfer taxes like a deed.
Selling unused air rights above your building is the mirror image: you relinquish air space, a listed component of real property, and buy any qualifying replacement. Each letter states that under section 6110(k)(3) it 'may not be used or cited as precedent', so they show the IRS's reasoning, not a rule you can rely on.
Worked example: a $400,000 easement sale funds a rental purchase
Hypothetical, round numbers; run your own numbers with your CPA. You own investment farmland and sell a perpetual agricultural conservation easement to a county purchase program for $400,000. Your CPA apportions $100,000 of the land's basis to the rights conveyed, so the gain is $300,000.
The sale closes through a qualified intermediary, and within 180 days you buy a $400,000 rental property you identified by day 45. All $300,000 is deferred, and the land keeps its remaining basis with the easement on it.
Buy only $250,000 of property and $150,000 is boot, taxed at long-term capital gain rates with no depreciation layer on bare land; add the 3.8% net investment income tax above $250,000 joint or $200,000 single modified AGI.
Check duration, state law and use before you sign, and keep a passive fallback ready
Both letters leaned on permanence. A term easement or a right that a city can revoke at its discretion fits the rulings less well. Get the state-law classification and the duration in writing from counsel before the contract.
The holding test still applies on both sides. Rights carved out of land you hold for investment or farming qualify; rights over your home do not, as the ranch letter shows. The right must be described precisely on your identification notice, as for any property; see how to identify replacement property.
Easement sellers often have no obvious replacement, because the land stays with them. A Delaware Statutory Trust interest can take the exact proceeds as a passive holding, with illiquidity, sponsor fees and no control as the trade-offs; see traditional DST exchanges and the broader land into DST question.
Related questions
Is a term easement treated the same as a perpetual one?
Not safely. The rulings rest on perpetual rights, and a limited-term interest is a weaker fit for exchange against a fee; see the water rights and easements page for that distinction.
Can I sell part of the easement value and deduct the rest as a gift?
A bargain sale mixes a sale and a contribution, and only the sale portion produces exchange proceeds. Have your CPA confirm how the split is computed before closing.
Can development rights I buy attach to land I already own?
PLR 200805012 said that did not prevent like-kind treatment, following Rev. Rul. 68-394, where the rights were real property under state law and bought at arm's length.
Does a utility right-of-way payment count?
A permanent easement sold to a utility was like kind to real estate in Rev. Rul. 72-549, as the IRS described it in PLR 200201007. If you are paid under condemnation, see condemned or destroyed property.
Can I rely on a private letter ruling someone else received?
No. Each letter says it is directed only to the taxpayer who requested it and may not be cited as precedent, though it shows how the IRS reasoned.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- 26 U.S.C. Section 1031
- Treas. Reg. Section 1.1031(a)-3, definition of real property
- Treas. Reg. Section 1.1031(a)-1, like kind
- IRS PLR 200201007, perpetual conservation easement for fee interest
- IRS PLR 200805012, development rights as replacement property
- 26 U.S.C. Section 170(h), qualified conservation contributions
- IRS, net investment income tax