Like-Kind Property After the Tax Cuts and Jobs Act

Before 2018, Section 1031 covered both personal property and real property. The Tax Cuts and Jobs Act limited the section to real property held for investment or use in a trade or business, effective for exchanges completed after December 31, 2017. Understanding what still counts as like-kind real property is the starting point for every exchange strategy in the Washington DC metro area.

What Real Property Qualifies as Like-Kind

The standard for real property is broad. Almost all real property held for investment or business use is like-kind to almost all other real property held for investment or business use. Quality or grade is not compared. A District of Columbia apartment building can be exchanged for industrial property in another state, raw land, a ground lease with a term of thirty years or more, or a fractional Delaware Statutory Trust interest that qualifies as real property under Revenue Ruling 2004-86.

Property That Does Not Qualify

• A primary residence used for personal purposes
• Property held primarily for resale, sometimes called dealer property
• Stocks, bonds, and other securities
• Partnership interests
• Personal property such as equipment, vehicles, or artwork

Held for Investment or Business Use

Qualifying property must be held for productive use in a trade or business or for investment, not for personal use. A property used partly as a personal residence and partly as a rental may require an allocation between the qualifying and nonqualifying portions before an exchange is structured.

Washington DC Property Types Commonly Exchanged

Multifamily buildings in neighborhoods such as Petworth, Columbia Heights, and Trinidad, single tenant retail along established commercial corridors, medical office space, and industrial or flex properties east of the Anacostia River all qualify as like-kind to replacement property located anywhere in the United States.

Foreign Property Is Not Like-Kind to Domestic Property

Real property located outside the United States is not like-kind to real property located within the United States, even though both may be held as investment real estate. An investor selling property in Washington DC cannot exchange into foreign real estate and preserve deferral under Section 1031.

Partial Interests and Undivided Fractional Ownership

An undivided fractional interest in real property, such as a tenant in common interest that meets the requirements of Revenue Procedure 2002-22, can also qualify as like-kind property. These structures allow an investor to acquire a percentage ownership stake in a larger property alongside other unrelated owners, which can be useful when the value of the relinquished property is smaller than the institutional grade assets an investor wants to acquire in the DC metro market.

State and District Level Conformity

The District of Columbia generally follows the federal treatment of a properly structured 1031 exchange for income tax purposes, meaning deferred gain is not immediately recognized on the District return either. If an exchange later fails or produces boot, the recognized gain is taxed by the District as ordinary income under its graduated brackets, not at a separate capital gains rate, with the top bracket reaching 10.75 percent for taxable income above $1,000,000. Investors moving between the District, Maryland, and Virginia should also confirm the conformity rules of the destination jurisdiction before assuming identical treatment.

Confirming Like-Kind Status Before Identification

Because the definition of like-kind real property is broad, most disputes arise not over whether a property type qualifies, but over whether the property is genuinely held for investment or business use rather than personal use or resale. Reviewing the intended use of a prospective replacement property with a tax advisor before it is added to the identification list helps confirm eligibility while there is still time to identify an alternative, rather than discovering an issue after the forty-five day window has closed.

Frequently Asked Questions

Can vacant land be exchanged for an income producing building?

Yes. Vacant land held for investment is like-kind to any other real property held for investment or business use, including an improved building, because Section 1031 compares the nature of the property, not its grade or quality.

Did the Tax Cuts and Jobs Act eliminate 1031 treatment for personal property exchanges?

Yes. Exchanges of personal property, such as equipment, vehicles, or artwork, no longer qualify for deferral under Section 1031 for transactions completed after December 31, 2017. Only real property remains eligible.

Does a Delaware Statutory Trust interest qualify as like-kind real property?

A beneficial interest in a properly structured Delaware Statutory Trust can qualify as like-kind real property under Revenue Ruling 2004-86. These interests may also be securities, and investors should work only with licensed providers for any DST offering.

This article provides educational content only. It does not constitute tax, legal, or investment advice. Section 1031 defers federal income tax on qualifying real property and does not remove Washington DC transfer or recordation tax obligations. Consult a qualified tax advisor or attorney before acting on any exchange timeline.

DST or TIC interests may be securities. We do not sell securities. We provide introductions to licensed providers only.