Like-kind is the most misunderstood term in the 1031 exchange rules, mainly because it sounds like it requires swapping similar property types, an apartment building for another apartment building. In practice, the like-kind standard for real property is broad: since 2018, any real property held for investment or business use can be exchanged for any other real property held for investment or business use, regardless of type, class, or location. A New York City owner can sell a Brooklyn multifamily building and replace it with an industrial warehouse in another state, or a retail condominium for a Delaware Statutory Trust interest, and both sides satisfy the like-kind requirement.
What Qualifies on the Real Property Side
The property has to be held for productive use in a trade or business or for investment, not for personal use and not primarily for resale. Rental apartment buildings, office buildings, industrial and warehouse space, retail and mixed-use property, land held for investment, and fractional interests such as tenant-in-common structures or Delaware Statutory Trust allocations all generally qualify, as long as the holding purpose is investment or business rather than a quick flip.
Vacant land held for future development can qualify, but land purchased with the intent to build and immediately sell a finished project starts to look like inventory rather than investment property, which is a distinction the IRS scrutinizes on a case-by-case basis.
What Does Not Qualify
A primary residence never qualifies for a 1031 exchange, regardless of how much it has appreciated; that gain is handled separately under the Section 121 home sale exclusion. Property held primarily for resale, such as a fix-and-flip project, does not qualify because it is treated as inventory rather than investment property. Personal property exchanges, once allowed under the old like-kind rules, were eliminated entirely by the 2017 tax law, so equipment, vehicles, artwork, and similar assets no longer qualify for 1031 treatment at all, only real property does.
Why Co-op Shares Are a Trap in New York City
Cooperative apartment ownership in New York City is structured as shares in a corporation that owns the building, paired with a proprietary lease, rather than direct ownership of real property. Because a co-op interest is technically personal property, stock, not real property, it does not automatically qualify as like-kind under the current rules the way a condominium unit or a fee-simple building does. Some New York courts and tax authorities have treated cooperative interests as real property equivalents in specific contexts, but an exchanger relying on a co-op as either the relinquished or replacement property should have that treatment confirmed by their tax advisor well before the exchange begins, not assumed by default.
Mixed-Use and Partial-Investment Property
A New York City building used partly as the owner's residence and partly as rental units, common in a brownstone with an owner-occupied floor, only qualifies for exchange on the portion held for investment or business use. The residential portion the owner lives in follows the Section 121 rules instead. Splitting the transaction correctly between the two, with the allocation supported by square footage or another defensible method, is necessary before either side of the sale is structured as an exchange.
Documenting Investment Intent
Because the like-kind standard for real property is broad, the more common issue in an audit is not whether a property type qualifies but whether the taxpayer's holding intent was genuinely investment or business use. A property purchased shortly before the sale, with little or no rental history, or a replacement property placed into service as a personal residence soon after the exchange closes, both raise questions about whether the investment intent was real at the time of the transaction. Keeping lease agreements, rental income records, and a consistent holding period on both the relinquished and replacement side is what supports the exchange if the return is ever reviewed.
Common 1031 Exchange Questions
Does a New York City apartment building have to be exchanged for another apartment building?
No. Since 2018, any real property held for investment or business use can be exchanged for any other qualifying real property, regardless of type. An apartment building can be exchanged for industrial, retail, or land, as long as both properties are held for investment or business purposes.
Can a taxpayer 1031 exchange a vacation home?
Only if the property was genuinely held for investment or rental use rather than primarily for personal use. A vacation home used mostly by the owner personally generally does not qualify, and the IRS looks closely at actual rental history and personal use days.
Do co-op shares qualify as like-kind property in a 1031 exchange?
Not automatically. A cooperative interest is technically personal property under corporate stock ownership rather than direct real property, so its treatment needs to be confirmed with a tax advisor before it is used as either the relinquished or replacement property.
Can equipment or personal property still be exchanged under Section 1031?
No. The 2017 tax law eliminated personal property exchanges entirely. Only real property held for investment or business use currently qualifies for 1031 treatment.
Does a Delaware Statutory Trust interest qualify as like-kind replacement property?
Yes, when structured to meet IRS requirements for a DST offering. A properly structured DST interest is treated as a direct ownership interest in real property for exchange purposes, which is why it is a common replacement option for sellers who want to step back from active management.
