"Like-Kind" in 2026: What Counts as Real Property After TCJA
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Key Takeaways
After 2017, 1031 exchanges only apply to real property. This includes land, buildings, permanent structures, and certain fixtures. Equipment, vehicles, artwork, stocks, and cryptocurrency do not qualify. Gray areas like solar installations and cell towers require careful analysis under Treasury Regulation 1.1031(a)-1(c).
Since January 1, 2018, Section 1031 exchanges apply exclusively to real property. Any U.S. real property held for investment or business use is like-kind to any other U.S. real property held for investment or business use. Equipment, vehicles, personal property, and all non-real-estate assets no longer qualify.
What qualifies as real property
| Category | Examples | Notes |
|---|---|---|
| Land | Raw land, commercial lots, agricultural parcels, mineral rights | Developed or undeveloped; any interest in land qualifies |
| Buildings and permanent structures | Houses, apartment buildings, office towers, warehouses, hotels, retail centers | The structure itself, permanently attached to land |
| Improvements integral to the land | Paved parking lots, driveways, fences, in-ground pools, underground utilities, permanent landscaping | Must be designed to remain in place indefinitely |
| Inherently permanent structures | Cell towers (in some configurations), large-scale solar installations affixed to buildings, built-in building systems (HVAC, plumbing, electrical) | IRS language; the test is whether removal would require significant effort or cost |
The like-kind standard within real property is broad. You can exchange a single-family rental for a commercial office building, a strip mall for farmland, or a warehouse for an apartment complex. The IRS cares about the nature of the asset (real property), not its type, quality, or grade.
What does not qualify
Since the 2017 Tax Cuts and Jobs Act (TCJA), these categories are excluded from 1031 treatment:
- Equipment and machinery
- Vehicles (cars, trucks, trailers, heavy equipment)
- Aircraft and watercraft
- Personal property of any kind
- Artwork, collectibles, coins
- Inventory or stock in trade
- Securities, cryptocurrency, digital assets
- Patents, trademarks, intellectual property
- Furniture and appliances (unless within the incidental property safe harbor)
If it is not real property or a permanent part of real property, it does not qualify.
Gray areas requiring professional judgment
Solar and wind installations. Panels or turbines permanently affixed to a building or land are likely real property. Removable or temporary-mount systems may be personal property. The answer depends on construction method and permanence of attachment.
Cell towers. A tower leased to a telecom company where the primary asset is the land lease is generally treated as real property. A tower used as operating equipment by the telecom company itself may be personal property.
Fixtures. The test is how difficult removal would be without damaging the structure. A built-in HVAC system is real property. A portable space heater sitting in the building is not. Installed plumbing, electrical systems, and built-in equipment that would transfer with the building are generally real property.
Treasury Regulation 1.1031(a)-1(c) (2020) provides guidance, but judgment is still required. Consult a tax professional for borderline cases.
The 15% incidental personal property rule
Under Treasury Regulation 1.1031(k)-1(g)(7), if an exchange of real property includes incidental personal property (items customarily transferred with real property) valued at no more than 15% of the replacement property's fair market value, the exchange still qualifies. This does not convert personal property into like-kind real property. It simply means minor items like built-in appliances or office fixtures will not disqualify an otherwise valid exchange.
This safe harbor does not cover vehicles, equipment, or other substantial personal property that happens to be on the premises.
Allocating mixed properties
When selling property that includes both real and personal property, the closing statement should separately identify and value each category. This allocation matters for Form 8824 and for calculating boot. If personal property exceeds 15% of the replacement property's value, the excess does not qualify for 1031 deferral.
Historical context
Before the TCJA, Section 1031 covered personal property, equipment, vehicles, and even collectibles. Contractors exchanged construction equipment. Transportation companies exchanged fleet vehicles. The 2017 law narrowed the provision to real property only, partly to raise revenue and partly to limit deferral opportunities for non-real-estate business assets.
For investors focused on real property, the practical impact is minimal. The like-kind standard for real property remains as broad as it was before 2018: any qualifying real property for any other qualifying real property.
Planning around the limitation
If you hold appreciated equipment, vehicles, or other personal property that would have qualified before 2018, your options include selling and paying capital gains tax, continuing to depreciate the asset, donating to a qualified charity for a deduction, or exploring Section 1231 treatment (which provides capital gains rates on gains but ordinary loss treatment on losses).
For portfolio strategy, focus capital investments on real property components that qualify for 1031. Consult a professional about gray-area assets before structuring an exchange.
The Bottom Line
Before TCJA, 1031 was flexible about property types. Now it's narrowly focused on real property. Ensure your exchange qualifies by clearly identifying what property is being exchanged and consulting a professional about gray areas.
Frequently Asked Questions
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