what is a like kind property 
the term like kind property refers to two real estate assets of a similar nature regardless of grade or quality that can be exchanged without incurring any tax liability the internal revenue code irc defines a like kind property as any held for investment trade or business purposes under section 1031 making them a 1031 exchange 1 this means both properties involved in the exchange must be for business or investment purposes personal residences therefore do not qualify as like kind properties 2understanding like kind propertiespeople or businesses that hold qualifying business or investment properties can exchange them in a like kind exchange this is known as a tax deferred or 1031 exchange under section 1031 of the u s tax code allowing the seller to avoid paying capital gains on the exchange the like kind property must meet the definition set out by the internal revenue service irs to qualify for a section 1031 transfer 2 in order to qualify for tax deferral like kind properties cannot be sold directly they must be exchanged 1the like kind property also must be within the united states to qualify 2 so a seller cannot use the proceeds from selling a hotel in the u s to buy a hotel in dubai and expect to defer capital gains on the sale securities stocks bonds partnership interests and other financial assets are excluded from the definition of like kind property securities stocks bonds partnership interests and other financial assets are not considered like kind properties and are exempt from tax deferrals 2like kind exchanges can take several different forms in a simultaneous exchange the two properties can be exchanged on the same day there s also the deferred exchange in which the party has 180 days to finalize the exchange after it takes place for example if an investor sells farmland they have 45 days to identify a replacement property the purchase of the like kind property must be completed within 180 days of the farmland sale or by the due date for the tax return that year the irs may grant an extension on the taxes to allow for the like kind exchange to be completed before filing 2many people believe that like kind properties must be of the same size or type to qualify but that s not true different assets can be exchanged as long as they qualify primary or principal residences which are for personal use for the most part do not qualify and cannot be exchanged properties must be held for business or investment purposes here are a few examples of like kind property exchanges special considerationsthe like kind property exchange for real estate transactions is still in force but various changes to the tax code have chewed away at other parts of the definition in the past the like kind property exchange was used for assets that include everything from cars to art to cryptocurrency holdings the 1031 exchange process can be quite complex and any missteps can be very costly therefore it may be worthwhile to work with a reputable full service 1031 exchange company in general these companies are much less expensive than paying an attorney by the hour because of their scale and you may gain peace of mind by contracting a firm with a solid track record in dealing with these transactions the tax cuts and jobs act tcja passed in december 2017 removed everything but real estate held for business trade or investment 3 there has been a robust debate on why real estate should enjoy such favored tax status when other investments like machinery and equipment must deal with capital gains on every sale regardless of reinvestment as of 2021 however the like kind property exchange is still an excellent way to build tax deferred wealth in real estate 