The short answer
Like-kind property is real property of the same nature or character as the property you give up in an exchange, whatever its grade or quality. The test comes from section 1031(a) and Reg. section 1.1031(a)-1(b), and since 2018 it covers only real property. Almost any US real estate held for business or investment is like kind to any other, so the harder questions are whether an asset is real property at all and whether it sits inside the United States.
At a glance
| The test | Same nature or character; grade or quality does not matter |
|---|---|
| Improved vs unimproved | Not material: a building can be exchanged for raw land |
| Scope since 2018 | Real property only, for exchanges completed after December 31, 2017 |
| Foreign property | US real property and real property outside the US are not like kind |
The term comes from the statute and a regulation that looks at nature, not quality
Section 1031(a)(1) defers gain when real property held for productive use in a trade or business or for investment is exchanged solely for real property of like kind held the same way. The statute does not define like kind. Reg. section 1.1031(a)-1(b) does: the words refer to the nature or character of the property, not to its grade or quality, and whether real estate is improved or unimproved is not material.
The regulation's own examples show how wide that is. A taxpayer who is not a dealer can exchange city real estate for a ranch or farm, a leasehold of a fee with 30 years or more to run for real estate, or improved real estate for unimproved real estate. Business use and investment use are interchangeable on either side.
Before 2018 the term also reached equipment, vehicles and other personal property. Public Law 115-97, section 13303, substituted "real property" for "property" throughout section 1031 for exchanges completed after December 31, 2017, so a truck for a truck no longer qualifies even though the old regulation still uses that illustration.
Worked example: one rental house into farmland and a DST interest is all like kind
Hypothetical: you sell a furnished rental house for $800,000 through a qualified intermediary. The furniture is valued at $10,000 of that price. You then buy $490,000 of farmland and a $300,000 interest in a Delaware Statutory Trust.
House to farmland is improved to unimproved, which the regulation says is a difference in grade, not kind. The trust interest counts when the trust is structured so investors are treated as owning its real estate, as explained in how DST interests qualify. The furniture is not real property, and Reg. section 1.1031(a)-1(a)(2) denies deferral to property transferred that does not meet section 1031, so its share of the price is taxed as a sale.
These figures are hypothetical and ignore costs and debt. Run your own numbers with your CPA before you set the purchase prices.
Where it bites: foreign real estate, assets that are not real property, and property held for sale
Section 1031(h) says real property located in the United States and real property located outside the United States are not property of a like kind. A US rental cannot be exchanged for a villa abroad; see which territories count as the United States.
Like kind is only reached once both sides are real property under Reg. section 1.1031(a)-3. Stock, partnership interests and other listed intangibles fail regardless of state law, which the section 1031 definition of real property covers in detail.
Finally, section 1031(a)(2) excludes real property held primarily for sale. Two parcels can be perfectly like kind and still fail if you are a dealer in them, which is the held for productive use or investment test.
Related questions
Is an apartment building like kind to vacant land?
Yes. Reg. section 1.1031(a)-1(b) and (c) treat improved and unimproved real estate as the same kind, provided both are held for business or investment use and you are not a dealer.
Can I exchange US real estate for property in another country?
No. Section 1031(h) makes US and non-US real property not like kind to each other, so that exchange is taxed as a sale and a purchase.
Does equipment sold with a building qualify as like kind?
Only if it is real property under the 2020 regulations, for example a structural component. Movable equipment and furniture are personal property and are taxed as boot or as a separate sale; see furniture in a furnished rental.
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.