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What is a Like-Kind Property
Section 1031 of the U.S. Internal Revenue Code says, "no gain or loss shall be recognized if property held for productive use in a trade or business or for investment... is exchanged solely for property of like kind to be held for productive use in trade or business or for investment."
Any type of investment property can be exchanged for another investment property. The term, "like-kind," refers to the nature of the investment. As a result, a like-kind exchange can include the exchange of undeveloped land for a duplex, the exchange of an apartment building for a motel, or a ranch for an office building. All of the above referenced exchanges are considered "like-kind" exchanges.
However, there are some properties are not exchangeable under Section 1031, including land subdivided into multiple parcels and then sold piece by piece, a home built primarily for resale, or properties fixed up and immediately sold. These properties are considered inventory and are not exchangeable.
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What is the Boot Test?