Like Kind Exchange Rules 2026: Complete Guide for Real Estate Investors
What Is a Like Kind Exchange?
A like kind exchange, or Section 1031 exchange, allows real estate investors to defer capital gains tax on the sale of an investment property by using the proceeds to purchase a similar (“like kind”) property. In 2026, this remains a cornerstone tax strategy for growing your portfolio.
Key Takeaways
- Section 1031 exchanges allow tax deferral on real estate sales if rules are followed precisely.
- Strict 45-day and 180-day timelines apply for identifying and acquiring replacement property.
- A qualified intermediary (QI) must hold proceeds; you cannot touch the sales funds directly.
- Only real property held for investment/business qualifies, not personal homes or stocks.
- Failing to comply triggers immediate tax obligations and possible penalties.
Critical 45-Day Identification Rule
After selling your investment property (the “relinquished property”), you must identify potential replacement properties—by address or legal description—within 45 days. The identification must be made in writing to your QI. IRS rules allow for two main identification methods:
- Three-Property Rule: Identify up to three properties of any value.
- 200% Rule: Identify unlimited properties if their total value is no more than 200% of the sold property.
180-Day Completion Rule
From and including the sale’s closing date, you have 180 days to acquire one or more of your identified replacement properties. Missing this deadline results in the entire transaction becoming taxable.
Qualified Intermediary: Why You’re Required to Use One
All proceeds from your property sale must be held by a QI, who will transfer those funds only for the acquisition of replacement properties. The QI cannot be your agent, attorney, or someone with whom you have a close relationship. Most charge $1,000–$2,000 per transaction and help with IRS paperwork (Form 8824).
Eligible and Ineligible Properties
Like kind exchanges in 2026 are allowed only for real property held for investment or businesses purposes. The IRS accepts exchanges between very different real estate types—such as an apartment complex for vacant land or a retail building for an office complex. The properties do not need to be identical, just “like kind.” Excluded: your primary residence, properties not held for business/investment, securities, or partnership interests.
| Qualifies | Does NOT Qualify |
|---|---|
| Rental homes, apartments, land, commercial buildings | Primary home, stocks, cryptocurrencies, partnership interests |
Potential Capital Gain Deferral Example (2026 Tax Year)
| Sale Price | Original Basis | Gain | Potential Tax at 23.8% |
|---|---|---|---|
| $900,000 | $500,000 | $400,000 | $95,200 |
If you comply with 1031 rules, you can defer all $95,200 in capital gains tax and reinvest the full sale proceeds.
Case Study: Sarah Defers $87,500 in Taxes
Sarah, a San Diego investor, used a 1031 exchange to sell a duplex for $800,000 (original basis $433,000). With Uncle Kam’s help, she used a qualified intermediary, identified a new property in 45 days, closed within 180, and deferred over $87,500 in federal capital gains taxes. She reinvested her entire proceeds and upgraded her portfolio; total QI costs were under $1,500. More results here.
Next Steps
- Engage a qualified intermediary before listing your investment property.
- Document identification and exchange process thoroughly—keep all paperwork!
- Consult a tax professional to coordinate exchange rules, depreciation recapture, and state taxes.
- Plan early: 1031 exchanges require strategic timing and precise execution.
Frequently Asked Questions
Can I exchange my personal home?
No. Only properties held for business or investment use are eligible for 1031.
What is “boot”?
Boot is any value you receive (cash or other non-like kind property) that is not reinvested into a replacement property. It is taxable.
Can I use a family member as a QI?
No. The QI must be an independent party (not a close associate, agent, or relative).
Is there a limit to the number of exchanges?
No. Real estate investors can do unlimited 1031 exchanges as long as all rules are followed each time.
What about depreciation recapture?
Depreciation deduction is deferred, not erased. You’ll owe recapture tax if a chain of exchanges eventually ends with a taxable sale.
For more tax-saving strategies for real estate investors, visit our guide on professional tax planning.
This information is current as of 01/15/2026. Tax laws change frequently. Verify updates with the IRS (IRS.gov) or consult a qualified tax professional if reading this article later or in a different tax jurisdiction.
