Welcome to Part 4 of our 1031 Exchange Blog Series. If you’re selling an investment property and hoping to reinvest through a 1031 Exchange, one of the first questions you’ll face is:
“What exactly counts as ‘like-kind’ property?”
Spoiler alert:
It doesn’t mean what most people think—and it’s one of the reasons 1031 Exchanges are so powerful.
What Does “Like-Kind” Really Mean?
Contrary to popular belief, “like-kind” does not mean identical.
You don’t need to exchange an apartment for another apartment or a commercial building for another commercial building.
Under IRS rules, “like-kind” simply means both the sold and replacement properties must be: ✔️ Located in the U.S.
✔️ Held for investment or productive use in a trade or business
That’s it.
So, for example: ✅ You can exchange a rental condo in Bay Ridge for a mixed-use building in Dyker Heights
✅ You can exchange vacant land for a multi-family property
✅ You can go from a single-family rental to a retail storefront
Real-World Examples from the Market
The Real Deal frequently profiles developers in NYC who use 1031 Exchanges to trade aging assets for ground-up construction opportunities, or reposition their portfolios to adjust for market conditions.
And according to The Wall Street Journal, even institutional investors use this broad “like-kind” definition to scale portfolios efficiently across multiple property types—residential, commercial, even industrial.
The New York Times has reported on how landlords are taking advantage of this flexibility to exit underperforming buildings and move into lower-maintenance, income-producing assets.
What Doesn’t Qualify?
Some assets are off-limits for 1031 treatment, including: 🚫 Your primary residence
🚫 A second home or vacation property used primarily for personal enjoyment
🚫 Properties intended for quick resale or flipping
🚫 Foreign properties
The IRS is strict about intent.
You must hold the replacement property for investment or business purposes—typically for at least one year.
Strategy Tip: Think Big-Picture
Many investors use 1031 Exchanges to trade up—moving from lower-value properties into higher-value assets with stronger cash flow.
This “laddering” strategy allows you to:
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Consolidate small properties into one large asset
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Diversify your holdings
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Reduce management headaches
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Reposition into up-and-coming neighborhoods
At Pen Realty, we help Brooklyn-based investors identify the best replacement options based on your goals—not just what qualifies on paper.
Let’s Talk Strategy
If you’re considering a sale and wondering what properties you can exchange into, let’s build a smart reinvestment plan together.
📧 Email: [email protected]
📞 Call/Text: 917.916.5126
▶️ Watch the full vlog series: @pmpenrealty
👉 Up next: The Role of a Qualified Intermediary—Your 1031 MVP
