Both personal and real properties can be considered the qualified properties for a 1031 tax-deferred exchange. A property, which s held for productive use in a business/trade or for investment purpose is eligible for exchange.
But, there are some property types that are not qualified for the exchange. These types include:
Certificates of trust
Notes, bonds, or stocks
Interests in a partnership of a limited liability company with multiple members.
Replacement property, which an individual plans to acquire, should be a like-kind to the property that is being relinquished. Like-kind refers to the properties that are similar in character or nature, regardless of the difference in quality or grade. Every real property can be considered like-kind. The factors like improvement or interest do not decide whether a property is like-kind. This means you can exchange a land with a building for a raw land. An investor can also exchange a single property for multiple ones. A personal property is not like-kind to a real property.
If you have a limited budget, you can consider Delaware Statutory Trust (DST) as an option for 1031 tax-deferred exchange. The DST investments can be considered like-kind to a real property.
We, at FAI Exchange, can help locate suitable DST properties that can be used to defer capital gains taxes. You can also connect with us to find a Qualified Intermediary for the exchange.