A "like kind exchange" of property is an exchange of property of similar use through which income taxes are not required to be paid at the time of the exchange.  The classification of properties exchanged determines if the property qualifies for a "like kind exchange" under Section 1031 of the Federal Tax Code.

There are four classifications of Real Estate established by the Internal Revenue Service.  The IRS's definition for property is:

Only classifications 3 & 4 qualify for Section 1031 tax treatment.  Also, both the property received and the property sold "given" must be of "like kind".   Note, it is your use of the property that establishes its classification.  How the other party uses the property does not affect your tax status.

It is important to remember that "like kind" is based on your use of the property and not its grade or quality.  Also, property addressed under Section 1031, may be mixed as to type and still be considered like kind.  Section 1031 treatment is not applied to property held outside the United States and its territories exchanged for property held with the United States.

Vacation home and property do not qualify for Section 1031 treatment if used solely for personal use.  It may qualify if rented and must pass a use test each year.

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This information is intended to provide a general background on the subject of Section 1031 "like kind exchanges".  While it is believed to be accurate, it does not cover all issues and considerations related to this subject, nor is it meant as a substitute for advise from your CPA, professional tax advisor or attorney.  You should always consult with your own financial and tax advisors to discuss such matters.