--- title: Can You Buy Raw Land With A 1031 Exchange? description: If land starts to quickly appreciate due to limited availability or increasing demand, a 1031 exchange is an option to defer capital gains. image: https://www.realized1031.com/hubfs/Images/photo/abstract/bluebonnet-land-trees-IS-487525939.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # Can You Buy Raw Land With A 1031 Exchange? Posted Aug 21, 2023 ![Can You Buy Raw Land With A 1031 Exchange?](https://www.realized1031.com/hubfs/Images/photo/abstract/bluebonnet-land-trees-IS-487525939.jpg) When it comes to 1031 exchanges, a common question arises - can you conduct a 1031 exchange on raw land? The answer is definitively yes. Under Section 1031 of the Internal Revenue Code, it's entirely possible to exchange raw land for another 'like-kind' property, which could even be a rental property. It's crucial to remember, though, that properties for personal use, including your main home or vacation homes, don't qualify for a 1031 exchange. The purpose of this rule is to facilitate the reinvestment of business or investment properties, and raw land certainly fits the bill. ### How does a 1031 exchange with raw land work? A[ 1031 exchange](https://www.realized1031.com/blog/how-to-declare-a-1031-exchange) is a transaction an investor uses to sell one investment property and reinvest the proceeds into another while deferring the payment of capital gains taxes on the sale. Suppose you sell a self-storage facility and purchase a plot of vacant land using a 1031 exchange. Let’s examine the difference in outcome using a 1031 exchange with raw land compared to a typical sell-and-buy transaction. If you purchased the self-storage facility three years ago for $400,000 and now sell it for $600,000, you would have a long-term capital gain of $200,000. If your capital gains rate is 20%, you would owe $40,000 on the increase, plus depreciation recapture (which will equal 25 percent of any depreciation deductions taken while you owned the investment property.) Instead, you execute a 1031 exchange to swap the self-storage facility for raw land. You must reinvest the entire proceeds, not just the gain, so the replacement property must be valued at no less than $600,000. ### Is it challenging to complete a 1031 exchange with raw land? Raw land can be bought or sold using a 1031 exchange, just like any other investment property. The key is that the assets must both be investment property, and the investor must closely follow the 1031 exchange rules. One significant requirement in a successful 1031 exchange is the timeline. The clock starts on the day you sell the targeted property, called the relinquished asset. Within 45 days of that sale, you must formally identify potential replacements. Formal identification means transmitting the information to your[ Qualified Intermediary](https://www.realized1031.com/blog/what-is-a-qualified-intermediary), who maintains these records as part of their overall exchange management. Replacement options can follow one of these three options (keeping in mind that the value of the final replacement(s) must be equal to or greater than the value of the relinquished asset): - Up to three potential replacements, each of which has a value equal to or greater than the sold property. - An unlimited number of properties with a combined total value of no more than 200 percent of the original asset’s value. - An unlimited number of properties with no maximum value as long as you acquire at least 95 percent of the value identified. Once the identification of potential[ replacement properties](https://www.realized1031.com/blog/1031-exchange-replacement-property-rules-what-you-need-to-consider) is complete, the investor must finalize the purchase within 180 days of the sale of the relinquished property. That 180-day clock starts on the sale date, not after the identification period. ### Raw land is considered “like-kind” to other investment properties. It’s essential to keep in mind that a qualifying characteristic of the land bought and sold within a 1031 exchange must be an investment property. Personal property does not qualify, although in some cases, personal property can be converted to investment assets. Property bought to improve and quickly resell (as in house flipping) is not considered an investment property. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. 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It's crucial to remember, though, that properties for personal use, including your main home or vacation homes, don't qualify for a 1031 exchange. The purpose of this rule is to facilitate the reinvestment of business or investment properties, and raw land certainly fits the bill. How does a 1031 exchange with raw land work? A 1031 exchange is a transaction an investor uses to sell one investment property and reinvest the proceeds into another while deferring the payment of capital gains taxes on the sale. Suppose you sell a self-storage facility and purchase a plot of vacant land using a 1031 exchange. Let’s examine the difference in outcome using a 1031 exchange with raw land compared to a typical sell-and-buy transaction. If you purchased the self-storage facility three years ago for $400,000 and now sell it for $600,000, you would have a long-term capital gain of $200,000. If your capital gains rate is 20%, you would owe $40,000 on the increase, plus depreciation recapture (which will equal 25 percent of any depreciation deductions taken while you owned the investment property.) Instead, you execute a 1031 exchange to swap the self-storage facility for raw land. You must reinvest the entire proceeds, not just the gain, so the replacement property must be valued at no less than $600,000. Is it challenging to complete a 1031 exchange with raw land? Raw land can be bought or sold using a 1031 exchange, just like any other investment property. The key is that the assets must both be investment property, and the investor must closely follow the 1031 exchange rules. One significant requirement in a successful 1031 exchange is the timeline. The clock starts on the day you sell the targeted property, called the relinquished asset. Within 45 days of that sale, you must formally identify potential replacements. Formal identification means transmitting the information to your Qualified Intermediary, who maintains these records as part of their overall exchange management. Replacement options can follow one of these three options (keeping in mind that the value of the final replacement(s) must be equal to or greater than the value of the relinquished asset): Up to three potential replacements, each of which has a value equal to or greater than the sold property. An unlimited number of properties with a combined total value of no more than 200 percent of the original asset’s value. An unlimited number of properties with no maximum value as long as you acquire at least 95 percent of the value identified. Once the identification of potential replacement properties is complete, the investor must finalize the purchase within 180 days of the sale of the relinquished property. That 180-day clock starts on the sale date, not after the identification period. Raw land is considered “like-kind” to other investment properties. It’s essential to keep in mind that a qualifying characteristic of the land bought and sold within a 1031 exchange must be an investment property. Personal property does not qualify, although in some cases, personal property can be converted to investment assets. 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