Traditional Real Estate

To qualify under Section 1031 of the Internal Revenue Code, both the relinquished and replacement properties must be held for investment or used in a trade or business. Qualifying properties include real estate such as rental homes, commercial buildings, office spaces, industrial properties, and vacant land.

In most cases, any real property held for investment can be exchanged for any other real property held for investment, for example, an apartment building can be exchanged for raw land, or a warehouse for a retail center.

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Traditional Homes

Single family homes comprise the vast majority of the property held by investors for 1031 Exchange purposes. Homes used solely as rental properties will generally always qualify for 1031 Exchange. Properties used as vacation rentals or part-time rentals, may or may not qualify for 1031 Exchange depending on specific rental use requirements and personal use limitations (click for more info).

Multi-Family

Multi-family properties can be fantastic 1031 Exchange options. If the owner of the property also lives in the property, the value of the owners unit will be excluded from 1031 Exchange treatment, but may qualify for the 'homeowners exemption".

Land

Land is unique when it comes to 1031 Exchange, as it doesn't necessarily have to produce income to qualify. Although land can be put to productive use, simply holding land for future appreciation is enough to satisfy the 1031 Exchange 'investment' requirement.

Commercial Property

Commercial property is a broad category of real estate used primarily for business or income-producing purposes. This includes, but is not limited to:

Office buildings
Retail centers or storefronts
Warehouses and industrial buildings
Hotels, motels, or short-term rental complexes
Mixed-use properties (e.g., a building with retail on the ground floor and apartments above)

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NNN Lease Properties

A NNN property, short for Triple Net Lease property, is a type of commercial real estate investment where the tenant, not the landlord, pays most or all of the property’s operating expenses.

NNN properties can be attractive for 1031 Exchanges because the investor enjoys steady, predictable income with very little landlord involvement. This makes NNNs appealing for exchangors looking to transition from hands-on management (like apartments) to a more “mailbox money” investment.

NNN lease properties are typically sold thru specialized NNN brokers or can be found on sites like loopnet.com.