Real Estate Interests Which Qualify as Like-Kind for a 1031 Exchange

There a surprising number of property types that are deemed ‘like kind’ under the tax free exchange rules. As examples, the  following types of real estate interests are deemed by Congress and the IRS to qualify as like-kind to each other for a 1031 Exchange:

• Fee interest
• Fractional (tenancy-in-common) interest
• Leasehold interest, 30-year plus lease
• Easements for conservation
• Easements for right of way
• Water rights
• Mineral Rights
• Oil & Gas interests
• Transferrable Development Rights
• Mutual Irrigation Ditch Stock
• City real property for a ranch or farm. See Treas Reg §1.1031(a)?1(c); Hubert Rutland, TC Memo 1977?8.
• Rental income property (house and land) for farmland and improvements but not farm machinery. See Rev Rul 72?151, 1972?1 Cum Bull 225.
• Improved real property for unimproved real property. See Treas Reg §1.1031(a)?1(b)?(c); Earlene T. Barker (1980) 74 TC 555. See §2.65 for further discussion of improvements.
• An exchange among cotenants of two or more parcels of real property so that each ends up with sole ownership of one of the parcels. See Rev Rul 79?44, 1979?1 Cum Bull 265; Rev Rul 73?476, 1973?2 Cum Bull 300; IRS Letter Ruling 9525038. See also IRS Letter Ruling 9609016.take care, however, in evaluating exchanges of property held in cotenancy because the interests exchanged may be treated as partnership interests, precluding nonrecognition treatment. See M.H.S. Co., TC Memo 1976?165, aff’d per curiam (6th Cir 1978) 575 F2d 1177.
• A 50 percent tenant-in-common interest in old-growth timberlands for a 100 percent interest in half of such timberlands. See IRS Letter Ruling 199926045. See also IRS Letter Ruling 199945046.
• A fee for a fee subject to an unexercised option. See Boise Cascade Corp., TC Memo 1974?315. See also Cary A. Everett, TC Memo 1978?53.
• A fee for the contractual right to purchase real property or equitable fee title subject to conditions precedent. See Biggs v Commissioner (5th Cir 1980) 632 F2d 1171; Starker v U.S. (9th Cir 1979) 602 F2d 1341.
• A remainder interest in one property for a remainder interest in another property. See Rev Rul 78?4, 1978?1 Cum Bull 256.
• A remainder interest in one property for a life estate in another property when the life tenant has a life expectancy of at least 30 years. See Rev Rul 72?601, 1972?2 Cum Bull 467.
• An agricultural conservation easement in perpetuity in a farm, found to be real property under state law, for a fee simple interest in real property. See IRS Letter Ruling 9232030. See also IRS Letter Ruling 200201007 and companion IRS Letter Rulings 200203033 and 200203042.
• Agricultural conservation easements over two farms for fee simple title in a different farm. See IRS Letter Ruling 9851039.
• A perpetual conservation easement encumbering real property for a fee simple interest in either farm land, ranch land, or commercial real property. See IRS Letter Ruling 9601046 (the conservation easement in question was granted by the taxpayer to the federal government over real property the taxpayer had held for many years for productive use in the business of cattle grazing and duck hunting).
• A scenic conservation easement, found to be real property under state law, for a fee simple interest in timberland, farmland, or ranch land. See IRS Letter Ruling 9621012.
• Raw land acquired by taxpayers for future use as a mobilehome park, on which taxpayers operated sand mining business under a nontransferable mining permit, for land and buildings. See Larry L. Beeler, TC Memo 1997?73.
• Transferable development rights associated with real property for a fee interest in real property. IRS Letter Rulings 200805012, 200901020.
• A utility easement for another utility easement. See IRS Letter Ruling 9814019.
• Replacement property for involuntarily converted outdoor advertising displays, which the taxpayer elected to treat as real property under an IRC §1033(g)(3)(C) election. See IRS Letter Ruling 200041027.
• Standing timber to be severed by the buyer, found to be a transfer of real property under state law, for a fee interest in land. D. G. Smalley (2001) 116 TC 450.
• The conversion of a stock cooperative into a condominium. See IRS Letter Rulings 200137032 and 200631012.
• An exchange of old growth timber for reproductive timber. See IRS Letter Ruling 200541037.
• Coal supply contracts for a fee interest in a gold mine. See Peabody Natural Resources Co. (2006) 126 TC 261. For discussion of supply contracts, see §2.68.
• An exchange of a perpetual stewardship easement for fee interest in real property. IRS Letter Rulings 200649028, 200651018, and 200651025.