Like-kind is the single most misunderstood term in a 1031 exchange, mostly because it sounds like it should mean similar in type, an apartment building for another apartment building, a warehouse for another warehouse. It does not mean that at all. For real estate, like-kind is defined broadly enough that almost any real property held for investment or business use qualifies as like-kind to almost any other, regardless of asset class, size, or location within the United States.
A Miami investor selling a small retail strip center can exchange into a self-storage facility in another state, or into raw land, or into a fractional Delaware Statutory Trust interest, and all of it can qualify as like-kind, because the classification looks at the nature of the ownership interest, not the type of building sitting on it.
The Real Test: Investment or Business Use
What actually determines like-kind eligibility is how the property is held, not what it looks like. Both the relinquished and replacement properties need to be held for productive use in a trade or business, or held for investment, which covers rental multifamily, office, industrial, retail, raw land held for appreciation, and agricultural land, among others. A personal residence does not meet this test even though it is real property, because it is held for personal use rather than investment or business purposes.
What Qualifies as Like-Kind in a Miami Exchange
In practice, this breadth is what lets a South Florida owner make dramatic changes to a portfolio through an exchange rather than being locked into the same asset type. Common qualifying trades include a Brickell office condo exchanged into a Naples multifamily property, a Homestead agricultural parcel exchanged into a Fort Lauderdale industrial building, or a single-tenant retail property exchanged into a fractional DST interest in a national portfolio. The property does not even need to sit in Florida; U.S. real property can generally exchange for U.S. real property anywhere in the country.
What Does Not Qualify
Personal residences, vacation homes used primarily for personal enjoyment, and property held primarily for resale, such as a spec house built to flip, generally fail the investment-or-business-use test. Personal property, meaning items that are not real estate, such as equipment, vehicles, artwork, or business inventory, no longer qualifies for 1031 treatment at all following the 2018 tax law change that limited the exchange to real property. Foreign real estate does not qualify as like-kind to U.S. real estate either, since the rules generally require both properties to be located within the United States.
Mixed-Use and Partial Personal Use Properties
A property used partly for investment and partly for personal purposes, like a Miami duplex where the owner lives in one unit and rents the other, generally requires allocating the exchange to the investment portion only. The personal-use share does not qualify for 1031 treatment, though it may separately qualify for the Section 121 home sale exclusion if the owner meets the residency requirements on that portion. Getting this allocation right before the sale closes is worth a conversation with a CPA, since it changes both the exchange math and the identification amount.
Common 1031 Exchange Questions
Does a warehouse have to exchange for another warehouse to qualify as like-kind?
No. Real property held for investment or business use is generally like-kind to any other real property held the same way, regardless of asset class, so a warehouse can exchange into multifamily, retail, land, or a DST interest.
Can I 1031 exchange my primary residence?
No. A primary residence is held for personal use, not investment or business purposes, so it does not meet the like-kind test. It has its own separate tax treatment under Section 121.
Does the replacement property have to be in Florida?
No. U.S. real property held for investment or business use is generally like-kind to any other U.S. real property, regardless of which state either one sits in.
Can personal property like equipment or a vehicle be part of a 1031 exchange?
No. Since 2018, 1031 exchanges are limited to real property. Personal property, including equipment, vehicles, and business inventory, no longer qualifies.
What happens if I live in part of the property I want to exchange?
The exchange generally applies only to the portion held for investment or business use. The personal-use portion is excluded and may separately qualify for the Section 121 home sale exclusion instead.
Is raw land considered like-kind to a developed commercial building?
Yes, as long as both are held for investment or business use. Raw land held for appreciation can generally exchange into a developed property like an office or industrial building.
