What Does Like Kind Property Mean Exactly?

Well, the answer to this question depends on the type of property that we are talking about. It is relatively easy to answer and determine what is like kind property if we are talking about real estate, but it is not so easy if we are talking about personal property.

Asset Classes
The vast majority of tax deferred exchange transactions involve real estate. In fact, I would estimate that over 98% of all tax deferred exchanges are exchanges of real property, which are much easier to determine whether the real property sold is like-kind to the real property acquired. Personal property tax deferred exchanges get more complicated in terms of determining whether the properties are like-kind or not.

Like-Kind Property
The determination as to whether real estate is like kind to other real estate is relatively easy. Any kind of real estate is like kind to any other kind of real estate provided that the properties sold and the properties acquired are held for:

• Rental (Income Production)
• Investment (Appreciation or Growth)
• Used in a trade or business

That's it. As long as the real property you are selling and the real property you are buying fall within these categories your properties will be considered like-kind property.

Determining whether personal property is like kind to other personal property gets much more complicated. Personal property must be broken down into its asset classes and the determination as to whether the properties are like kind are made by asset class and not as a whole.