what is a 1031 exchangeQualifying property means all those properties which have been held either for business purposes, or held for investment purposes. Property held for business means those used in trade or business. For example owner occupied factory premises. Rental income property, such as a factory or an apartment rented out to tenants, also qualifies under this head.
Property held for investment purposes, on the other hand, means those held mainly for speculative reasons such as selling at a higher price in future. However, if the owner himself starts using these premises as his own residence, then it would get disqualified.
The term like-kind, on the other hand, is a federal tax term used to describe the character or nature of the real estate in the owner's hands. It has nothing to do with the grade or quality specification.
The IRC has specifically excluded any property held for personal use, i.e. for residential purposes or as vacation homes, etc. from the purview of Section 1031. Similarly, dealer property also does not qualify for exchange here. The qualified intermediary assists in the safe transference and exchange of your property.
Therefore, 1031 Real Estate Exchange is really a welcome modification for those, who want to benefit by escaping their capital gains tax payments.