A like-kind property refers to two real estate assets of a similar nature regardless of grade or quality that can be exchanged without incurring any tax liability.
In regards to a 1031 Exchange, both the relinquished property and the replacement property must meet certain requirements. Both properties must be held for use in trade, business, or as an investment. Property used primarily for personal use, like a primary residence or a vacation home, does not qualify for a like-kind exchange.
Both properties must be similar enough to qualify as “like-kind.” Like-kind property is property of the same nature, character, or class. Quality or grade does not matter. Most real estate will be like-kind to other real estate. For example, a residential rental home is like-kind to a commercial office building or an industrial warehouse.