What Properties Qualify for a 1031 Exchange?
Not all real estate qualifies for a 1031 exchange. Understanding which properties qualify and which do not is essential before you begin planning your exchange.
The Core Requirement: Held for Investment or Business Use
To qualify for a 1031 exchange, a property must be held for productive use in a trade or business or for investment. This is the fundamental requirement under IRC Section 1031.
Properties That Qualify
The following property types generally qualify for a 1031 exchange:
Rental Properties Single-family rental homes, duplexes, triplexes, and small multi-family properties that are rented to tenants qualify, provided they are held for investment and not personal use.
Commercial Properties Office buildings, retail centers, industrial properties, warehouses, and other commercial real estate held for investment or business use qualify.
Multi-Family Properties Apartment buildings of any size qualify when held for investment.
Vacant Land Vacant land held for investment qualifies, even if it produces no income.
Farmland and Agricultural Property Farmland, ranches, and agricultural properties held for investment or used in a farming business qualify.
Net Lease Properties NNN-leased properties where the tenant pays taxes, insurance, and maintenance qualify.
Delaware Statutory Trust (DST) Interests Fractional interests in DSTs qualify as replacement property in a 1031 exchange.
Properties That Do Not Qualify
Primary Residences Your home does not qualify. However, the Section 121 exclusion may allow you to exclude up to $250,000 ($500,000 for married couples) of gain from your primary residence.
Fix-and-Flip Properties Properties purchased with the intent to renovate and resell (dealer property) do not qualify because they are held for sale, not investment.
Personal Vacation Homes A vacation home used exclusively for personal use does not qualify. However, a vacation rental that meets IRS safe harbor rules may qualify.
Foreign Property US real estate cannot be exchanged for foreign real estate. Foreign properties can only be exchanged for other foreign properties.
Personal Property Since 2018, only real property qualifies for 1031 exchange treatment. Personal property (equipment, vehicles, artwork) no longer qualifies.
Get Expert Guidance on Your Property
If you are unsure whether your property qualifies, contact 1031 Federal Exchange for a free consultation. Steve Wolterman, CES can review your specific situation.
Call us at 513-586-6879 or fill out our contact form.
Author
Steve Wolterman, Esq., CES
Attorney and Certified Exchange Specialist with over 20 years of experience guiding real estate investors through 1031 exchanges nationwide. Member of the Federation of Exchange Accommodators (FEA).