What type of real property qualifies for a 1031 exchange?

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Property is eligible for a 1031 exchange only when it is considered real property under the laws of the state or local jurisdiction where the property is located at the time of the exchange. To qualify as a 1031 exchange, the exchanged properties must be held by the taxpayer for an eligible purpose.

Eligible purposes include:

The 1031 exchange property must be held either for productive use in a trade or business or for investment.
Land, and improvements to land, are property that qualifies for a 1031 exchange.

Water and the air space over (“superjacent” to) land are eligible for a 1031 exchange.

Unsevered natural products of land can also qualify for a 1031 exchange.

The term improvements to land means inherently permanent structures like buildings and the structural components of inherently permanent structures such as walls, floors, and ceilings.

Unsevered natural products of land include things like growing crops and timber, mines, wells, and other natural deposits. Natural products like crops, timber, water, ores, and minerals will no longer qualify for a 1031 exchange once they’re severed or removed from the land.

The 1031 exchange regulations provide additional definitions and examples of qualifying real property.


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Can offer an excellent investment opportunity. But, institutional grade properties are very expensive and likely out of reach for most individual investors.
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