---
title: What is Like-Kind Property in Real Estate?
description: A common misconception about the term like-kind property is that when you exchange one property for another, they must be the same size and/or type.
---

[Realized 1031 Blog Articles ](https://www.realized1031.com/blog)

# [What is Like-Kind Property in Real Estate?](https://www.realized1031.com/blog/what-is-like-kind-property-in-real-estate)

 Written by [The Realized Team](https://www.realized1031.com/blog/author/the-realized-team) | Jan 19, 2020

After researching [1031 exchanges](https://www.realized1031.com/blog/what-is-a-1031-exchange), you might find yourself wondering what “like-kind property” really means when it comes to real estate. It’s a vague and sometimes misunderstood term when it comes to tax deferred exchanges.

The Internal Revenue Code defines like-kind properties as those that have been held for productive use in a business or trade, or as an investment. Like-kind, as used in this code section, means a property that is “similar in nature or character, regardless of differences in grade or quality.”

Still not clear?

Basically, the code says that the property to be sold *and* the property to be bought must be qualified business or investment properties. This is why you can’t sell your own personal residence and expect 1031 tax deferral benefits.

A property that has been used in a taxpayer’s business, including his/her place of office, is a qualified property. Additionally, any [real property](https://www.realized1031.com/education/glossary/real-property) that is held as an investment also qualifies for 1031 treatment.

A common misconception about [like-kind property](https://www.realized1031.com/glossary/like-kind-property) is that when you exchange one property for another, they both have to be the same size and/or type. This is not the case. Real property can be exchanged for another real property and still be eligible for [capital gains tax deferral.](https://www.realized1031.com/glossary/capital-gain-tax)

For example, raw land can be exchanged for an office building; a strip mall can be exchanged for a single-tenant, triple net investment property; and a rental house can be exchanged for fractional ownership in a high-rise apartment complex.

One exception for real estate is that property within the United States is not like-kind to property outside of the United States. Also, improvements that are conveyed without land are not like-kind to land.

Real property involved in a 1031 exchange simply needs to be in the real estate realm and held as an investment to qualify as a business property, and to ensure the deferral of capital gains tax.

[View full post](https://www.realized1031.com/blog/what-is-like-kind-property-in-real-estate)

```json
{
  "@context" : "http://schema.org",
  "@type" : "BlogPosting",
  "author" : {
    "@type" : "Person",
    "name" : "The Realized Team"
  },
  "dateModified" : "2023-03-15T15:58:34.637Z",
  "datePublished" : "2020-01-19T16:00:00Z",
  "headline" : "What is Like-Kind Property in Real Estate?",
  "image" : {
    "@type" : "ImageObject",
    "height" : 506,
    "url" : "http://cdn2.hubspot.net/hubfs/733513/Images/photo/abstract/like-kind-properties-rzh.jpg",
    "width" : 800
  },
  "mainEntityOfPage" : "https://www.realized1031.com/blog/what-is-like-kind-property-in-real-estate",
  "publisher" : {
    "@type" : "Organization",
    "logo" : {
      "@type" : "ImageObject",
      "height" : 60.0,
      "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png",
      "width" : 296.0
    },
    "name" : "Realized Blog Articles"
  }
}
```