When starting the 1031 Exchange process, real estate investors express concern about the IRS requirement that a property be exchanged for one that is "like-kind." They wonder, "what does like-kind really mean?" and "how similar must the properties be to qualify?"
What Like-Kind Really Means
The term "like-kind" does not mean that you have to buy or sell the exact same type of property. Instead, it refers to the qualities of a property, and the IRS regulations state that "all real property is like-kind to all real property."
How Does This Apply to Rentals?
For landlords, that essentially means that a rental property is like-kind to another rental property. It doesn't matter if you are exchanging a duplex for a 4-unit apartment building. As long as you qualify under the basic 1031 Exchange guidelines, the amount of units in the property that you've identified as a replacement property does not matter.
In fact, a 1031 Exchange is often used by savvy investors to upgrade their holdings and increase the number of assets under their management! Upgrading is encouraged!
If you are unsure if you qualify for a 1031 Exchange, or if the new property you would like to acquire is considered "like-kind" to the one you already own, please contact us. We are here to answer all of your questions and guide you through every aspect of the 1031 Exchange process. To schedule a complimentary consultation with the mention of this blog post, simply call (888) 508-1901.
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