1031 Like-Kind Rules 2026: What Qualifies and What Does Not

Like-kind is broader than most investors think for real estate, and narrower than they hope everywhere else. Here is the line.

Real property: the broad standard

For real estate, like-kind refers to the nature of the property, not its grade or use. An apartment building exchanged for raw land qualifies. A duplex for a shopping center qualifies. Fee simple for a 30-year leasehold qualifies. The properties can differ wildly in value, location, and type; what matters is that both are real property held for investment or business. Fractional interests like Delaware Statutory Trust (DST) interests and tenants-in-common interests that meet the revenue-procedure requirements also qualify, which is how exchangers diversify into institutional-grade property.

What does not qualify

Personal residences do not qualify, even a former rental converted to personal use too recently. Property held primarily for sale (flips, dealer inventory, new construction held for sale) does not qualify; the intent test looks at your holding purpose. Partnership interests do not qualify, which blocks exchanging into or out of a partnership interest directly (drop-and-swap transactions attempt to navigate this and need careful structuring). Stocks, bonds, and cryptocurrency are not like-kind to anything.

The 2017 repeal for personal property

The Tax Cuts and Jobs Act limited Section 1031 to real property for exchanges after 2017. Before that, businesses exchanged equipment, vehicles, and aircraft routinely. Those exchanges are gone; personal property now goes through normal sale treatment with bonus depreciation softening the blow. Investors who remember the old rules sometimes structure personal-property swaps that no longer qualify.

Related-party exchanges

Exchanging with a related party (family, controlled entities) is allowed but triggers a 2-year holding rule: if either party disposes of the exchanged property within 2 years, the original exchange is retroactively disqualified. There are exceptions for dispositions due to death, involuntary conversion, or non-tax-avoidance purpose, but related-party exchanges draw scrutiny and need documented business purpose.

Personal-use limits

A property with personal use can still qualify if the investment purpose dominates. The IRS safe harbor for a dwelling unit (Revenue Procedure 2008-16) requires renting it at fair market value for at least 14 days a year and limiting personal use to the greater of 14 days or 10 percent of rental days, for the two years before and after the exchange. Vacation homes that you mostly use yourself do not qualify; vacation homes you mostly rent can.

Converting between personal and investment use

Properties change character over time, and the exchange tests apply at the time of the exchange. A former primary residence converted to a rental can qualify after a period of genuine rental use, typically a year or more of documented investment intent, though there is no statutory minimum and facts control. Going the other direction, moving into a replacement property as your personal residence shortly after the exchange invites challenge; the longer the investment holding period after the exchange, the safer the position. Document intent with leases, listings, and tax returns showing rental treatment.

Special situations

Inherited property held for investment qualifies, though heirs who receive a stepped-up basis rarely need an exchange. Foreign real property is not like-kind to US real property; a foreign rental cannot be exchanged for a domestic one. Oil, gas, and mineral interests can qualify if they are real property interests under state law, a facts-and-circumstances question. When in doubt about whether an interest is like-kind, get a tax opinion before the relinquished closing, because the characterization cannot be fixed after the fact.

Sources: IRC Section 1031(a); IRS Revenue Procedure 2008-16. Data current as of October 2026. Not tax or legal advice.

Frequently asked questions

What does like-kind mean for real estate?

Real property for real property, both held for investment or business. An apartment building for raw land qualifies; the type, value, and location can all differ.

Can I 1031 exchange a personal residence?

No. Both properties must be held for investment or business use. A former rental needs a clear investment-purpose history to qualify.

Does a Delaware Statutory Trust qualify for 1031?

Yes. DST interests meeting the IRS requirements are treated as like-kind real property interests, commonly used to diversify exchange proceeds.

Can I exchange with a family member?

Yes, but a 2-year holding rule applies: if either party disposes of the property within 2 years, the exchange is disqualified retroactively.

Can equipment be 1031 exchanged anymore?

No. Since 2018, Section 1031 covers real property only. Personal property exchanges were repealed by the Tax Cuts and Jobs Act.