The most common misconception about exchanges is that like-kind means house-for-house. For real estate, like-kind refers to the nature and character of the property rather than its grade, quality or specific use.
That's why qualifying exchanges can include a residential rental into multifamily, a residential rental into commercial, commercial into residential investment property, or investment land into income-producing real estate. The breadth is what makes an exchange a genuine repositioning tool rather than a lateral move.
The requirement that does the real work is purpose. Both the relinquished and the replacement property generally must be real property held for productive use in a trade or business or for investment. Property held primarily for resale, personal-use property and foreign real estate as replacement for U.S. real estate raise issues.
Because purpose is a facts-and-circumstances question, no agent can tell you your property qualifies. Use 'may qualify' language, and let your CPA and qualified intermediary make the determination.
Related