Like-kind property refers to property that fulfills the requirements of a 1031 exchange, delaying the recognition of capital gains. While investment properties normally incur capital gains taxes immediately after being sold, the Internal Revenue Code (IRC) allows investors and organizations to defer capital gains taxes by reinvesting the proceeds from the original property in a like-kind property through a 1031 exchange. Exchanges operate by selling the initial property, and then using this money quickly to acquire a new like-kind property to replace the prior investment. Section 1031 of the IRC requires the like-kind property to be selected within 45 days and the purchase finalized within 135 days after identification. Like-kind property must cost the same amount or more than the original property, and multiple similar investments can be combined to fulfill this requirement. Since 2017, only real estate can qualify as like-kind property, but generally, all real estate purchased as an investment qualifies except for personal residences. The basis for the original investment will be altered to reflect the changes from the exchange of property so that the final capital gains taxes will accurately reflect what gain or loss the investor incurred.
[Last updated in March of 2022 by the Wex Definitions Team]