The exchange of Like Kind Property is the key to a 1031 Exchange. The IRS states:
Properties are of like-kind, if they are of the same nature or character, even if they differ in grade or quality. Personal properties of a like class are like-kind properties. However, livestock of different sexes are not like-kind properties. Also, personal property used predominantly in the United States and personal property used predominantly outside the United States are not like-kind properties.
Real properties generally are of like-kind, regardless of whether the properties are improved or unimproved. However, real property in the United States and real property outside the United States are not like-kind properties.
Like-kind is generally thought of investment property for investment property. If you trade a rented single family, you could be a condo for a rental. If you trade personal property, you have to trade a tractor for a tractor, not a tractor for a harvester. Basics of a 1031 are:
1) 45 days to identify the property and total of six months to close on the property (properties). If the 45th or 180th day falls on a weekend or holiday, it is the business day BEFORE, not after that is the deadline.
2) Must maintain the same amount of debt. If you had a $100k mortgage, you’d still need $100k of debt spread amongst the properties.
3) Your must spend at least what you sold. If you sold for $400k, you must spend at least $400k but it could be four 100k properties.
Getting off the 1031 cycle is the hard part. The general rule is Exchange, Exchange, Exchange, die. Heirs inherit at the market value the day the acquire, not your cost basis when you purchased. Lucky them.
If you are participating in a 1031 Exchange, please don’t take this as gospel. You need to make sure that you are following the process properly throughout.