In a 1031 exchange, the term “like-kind” causes more confusion than almost anything else. Many owners assume it means the replacement property must be similar in size, use, or appearance to the one being sold. That’s not how the IRS defines it. In real estate, like-kind is very broad.

At its core, like-kind means:

Real property held for investment or business use exchanged for other real property held for investment or business use.

Properties do not need to:

• Be the same type

• Be the same size

• Be in the same location

• Produce the same income

They just need to both qualify as investment or business real estate.

What Qualifies as Like-Kind (Broadly Speaking)

As long as both properties are real estate and held for investment or business purposes, they are generally like-kind to each other. This allows owners to change strategy, not just replace buildings.

Common Like-Kind Exchange Examples

Here are real-world examples that do qualify as like-kind:

• Apartment building → Apartment building

• Apartment building → Single-tenant retail building

• Small multifamily → Large multifamily

• Residential rental → Office building

• Office building → Industrial warehouse

• Retail strip center → Mixed-use property

• Mixed-use property → Apartment complex

• Industrial building → Medical office

• Self-storage facility → Retail property

• Vacant land (held for investment) → Income-producing property

• Income-producing property → Vacant land (held for investment)

• One property → Multiple replacement properties

• One property → Delaware Statutory Trust (DST)

All of these are considered like-kind because they are real property used for investment or business.

What Does Not Qualify as Like-Kind

Certain exchanges do not qualify:

• Investment property → Primary residence

• Primary residence → Investment property

• Real estate → Stocks or bonds

• Real estate → Business ownership interests

• Fix-and-flip property held primarily for resale

The key disqualifier is intent. Properties held primarily for resale or personal use generally do not qualify.

Location Does Not Matter

One of the most misunderstood points is geography.

• You can exchange property in Illinois for property in another state

• You can move from a local market to a national one

• You can diversify across regions

As long as both properties are in the United States and qualify as real property, location does not break like-kind status.

Why Like-Kind Is So Flexible

The IRS allows broad like-kind treatment to encourage reinvestment and continued economic activity in real estate. This flexibility lets owners:

• Reduce management responsibility

• Increase or stabilize cash flow

• Consolidate or diversify assets

• Move between property types as goals change

The Takeaway

In a 1031 exchange, like-kind does not mean “similar” — it means real estate for real estate, held for investment or business use. This flexibility is what makes 1031 exchanges such a powerful planning tool. Owners are not locked into the same type of property; they’re free to reposition as their needs change.

Because intent and structure matter, it’s important to review any planned exchange with a qualified tax professional. I can also help explain how like-kind flexibility plays out on the real estate side and what options typically make sense based on your goals.

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