What is like-kind property?
This question is often the most misunderstood concept of a 1031 exchange. This confusion leads many investors to unknowingly pay capital gains tax (many will even reinvest their after tax proceeds in real estate not knowing they had 1031 exchange options). The basic concept behind like kind property for 1031 exchanges deals with use, investment/business vs. personal(ie. your home). A rule of thumb is if you depreciated the property(unless vacant land), you may 1031 exchange into another investment/business use property. For 1031 exchange purposes, the type of real estate asset (single family rental home, apartment building, a vacant lot… etc) is interchangeable. Therefore, capital gain from an investment single family rental(any real estate asset type) may be traded into NNN property, office buildings, shopping centers or any real estate asset type.
For exchanges of real property, the definition is very broad. As long as the property is held for investment purposes or use in a trade or business, different types of property may be swapped. For example, an apartment complex may be exchanged for an office building; or raw land may be exchanged for a rental house.
