What type of property can be exchanged under Section 1031?
Qualifying use property is property that has been or will be held for income production (rental), investment or used in a trade or business. Your personal residence and vacation home are not qualifying use property and do not qualify for 1031 exchange treatment, although they may qualify for Section 121 Exemption treatment.
Assuming the property satisfies the qualified use test, then the property must satisfy the "like-kind" test. Real property is "like-kind" to real property, so as long as your are exchanging real property for real property it will qualify as "like-kind" for 1031 exchange treatment.
Among the types of real property that are eligible for 1031 exchange treatment are raw land, single-family homes, hotels, multifamily dwellings, factories, commercial office buildings, shopping centers, farmland, leases of 30 years or more, quarries and oil fields. In general, any type of real estate may be traded for another type of real estate as long as it satisfies the qualified use test.
"Like-kind" rules for personal property are more restrictive than those for real property. Aircraft, automobiles, trucks, office equipment, furniture, machinery, computers, musical instruments, billboards, franchise licenses, television licenses, copyrights, collectibles and oil and gas drilling equipment are just a few examples of personal property that qualify for 031 exchange treatment. You can exchange a small aircraft for another small aircraft, but not a small aircraft for a large aircraft such as a 747-300.
It is important to consult with your legal and tax advisor to determine whether your property will satisfy the qualified use and like-kind tests, especially in the areas of personal property 1031 exchange transactions.
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