The Basics of 1031 Exchanges – Part Two
There are limits as to the type of properties that qualify for a 1031 Exchange. First, a seller must hold both the relinquished property and the replacement property “in a trade or business” or “for investment purposes.” The purpose of this rule is to ensure that sellers cannot use a 1031 exchange to defer taxable gain with respect to personal assets (such as the seller’s home). The type of assets that can be exchanged must be of “like kind” to one another. However broad rules exist regarding what types of real estate will qualify as “like kind” property. For example you can sell a warehouse building and then purchase a retail center or office building to replace it.