The short answer
For section 1031, real property means land and improvements to land, unsevered natural products of land, and water and air space superjacent to land, as defined in Reg. section 1.1031(a)-3. Improvements are inherently permanent structures and their structural components, and listed intangible interests such as leaseholds, easements and options also count. The definition matters because since 2018 only real property can be exchanged, and it applies only for section 1031, not for depreciation or recapture.
At a glance
| Core definition | Land, improvements, unsevered natural products, and water and air space above land |
|---|---|
| Improvements | Inherently permanent structures and their structural components |
| Intangibles that count | Fee, co-ownership, leasehold, option, easement, co-op stock, land development rights |
| Never real property | Stock, bonds, notes, partnership interests, trust certificates and choses in action |
The definition comes from 2020 regulations written after the 2017 law limited exchanges to real property
When Public Law 115-97 limited section 1031 to real property, the Code did not say what real property meant. Treasury answered in Reg. section 1.1031(a)-3, which applies to exchanges beginning after December 2, 2020.
An inherently permanent structure is a building or other structure permanently affixed to real property that will ordinarily remain affixed indefinitely. The regulation lists buildings such as houses, apartments, hotels, warehouses, barns and stores, and other structures such as in-ground pools, roads, paved parking, fences, cell and broadcasting towers, pipelines, and grain bins and silos. Affixation may be by weight alone.
Structural components such as walls, wiring, plumbing, central heating and air conditioning, elevators, sprinkler systems and security systems are real property if integrated into the structure and held together with an interest in the space they serve. Growing crops, timber, mines and wells are real property until severed or extracted. Property that is real property under the law of the state where it sits on the date of transfer also counts, unless it is one of the excluded intangibles.
Worked example: the regulation's sculpture qualifies and its bus shelters do not
For assets not on the lists, the regulation weighs five factors: how the asset is affixed, whether it is designed to be removed, the damage removal would cause, any sign the affixation is not indefinite, and the time and expense of moving it.
Its Example 3 is a five-ton atrium sculpture anchored to supports embedded in the foundation, built inside the building and destroyed if removed. Every factor points to permanence, so the sculpture is real property. Example 4 is 400 prefabricated steel bus shelters bolted to sidewalks, which are moved when routes change in less than a day without real damage. Every factor points the other way, so they are not inherently permanent structures.
Example 2 adds a marina's boat slips and end ties, which are water space superjacent to land and so real property. Run the same five factors on any fixture you plan to treat as part of the real estate.
Where it bites: fund interests, business licenses and recapture
Under Reg. section 1.1031(a)-3(a)(5), stock, bonds, notes, other securities, interests in a partnership, certificates of trust or beneficial interests, and choses in action are not real property whatever state law says. That is why an LLC or fund interest usually cannot be exchanged; see syndication and LLC interests. A license or permit to operate a business on land is also excluded.
Interests that derive their value from real property and are inseparable from it can qualify, which is how water rights and easements and mineral rights are analyzed.
The definition has no effect outside section 1031. Reg. section 1.1031(a)-3(a)(7) says an asset can be real property for the exchange and still be section 1245 property for depreciation and recapture, so section 1245 recapture can still be due on an exchange.
Related questions
Is a cell tower or billboard real property for a 1031 exchange?
Cell, microwave and broadcasting towers are on the regulation's list of inherently permanent structures. Advertising displays are listed only when an election under section 1033(g)(3) is in effect; otherwise the five-factor test applies.
Is an interest in an LLC that owns a building real property?
No. Partnership interests are excluded by Reg. section 1.1031(a)-3(a)(5) unless the partnership has a valid election under section 761(a) to be excluded from subchapter K.
Does real property status here change my depreciation recapture?
No. The regulation states that no inference is intended for depreciation or for sections 1245 and 1250, so components depreciated as section 1245 property keep that treatment when you sell.
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.