Like-kind is a term used in 1031 exchanges to describe the type of property that can be exchanged under tax laws. In order to qualify for a tax-deferred exchange under Section 1031 of the IRS code, the properties being exchanged must be of a “like-kind.”
The term “like-kind” is often misunderstood to mean that the properties must be identical. However, they only need to be similar in nature or character, such as exchanging a rental property for another or raw land for improved land.
When considering a 1031 exchange, it is important to understand the requirements for like-kind property. This includes researching the IRS guidelines and consulting with a qualified intermediary and tax professional.
One of the key takeaways for like-kind in a 1031 exchange is that it can provide a valuable tax deferral opportunity for real estate investors. By exchanging one property for another of a like-kind, the investor can defer paying capital gains taxes on selling the original property.
It is also important to remember that like-kind property must be held for investment or productive use in a trade or business. Personal use property, such as a primary residence, does not qualify for a 1031 exchange.
like-kind is a crucial component of a 1031 exchange. Real estate investors can take advantage of the tax benefits offered by 1031 exchanges while ensuring a successful exchange process by understanding the requirements for like-kind property and following all IRS guidelines.
