Tuesday, March 24, 2009 at 01:55PM | Staff I'm Selling an SRF. Do I have to Buy an SFR if I 1031 Exchange?
No. This is a very common misconception that many investors have. Investors often incorrectly think that like-kind property in a 1031 exchange means that the relinquished property and the replacement property must be the exact same type of property (i.e. an SFR or an SFR or Condo for a Condo). This is absolutely not true.
Like Kind Property Defined
Like-kind in real estate is defined as any type of real estate that is held for rental, investment or use in a trade or business. It does not matter what type of real estate is involved in the 1031 exchange as long as the properties are held for rental, investment or use in business.
This post only applies to 1031 exchanges that involve the exchange of real estate. Like-kind in personal property 1031 exchanges is defined very differently.
Pay Close Attention to Depreciation Recapture
Investors should pay close attention when the properties involved have significantly different values allocated to improvements. For example, selling improved property and 1031 exchanging into vacant land (unimproved property) will trigger depreciation recapture because the acquired property has no depreciable improvements.
