To qualify as an exchange, the exchange must be distinguished from where the taxpayer simply sells one property and buys another. In a 1301 Exchange, the disposition of the sale property and the acquisition of the replacement property must be mutually dependent parts of an integrated transaction constituting an exchange of property. Taxpayers engaging in this type of transaction generally use an exchange facilitator, accommodator or Qualified Intermediary under exchange agreements pursuant to rules provided in the Income Tax Regulations.
Both the sale and purchase property must be held for use in a trade or business or for investment purposes. Property used primarily for personal use, like a primary residence or a second home or vacation home does not qualify for like-kind exchange treatment. Most real estate will be like-kind to other real estate as long as it will be held for business or trade and investment. For example, real property that is improved with a residential rental house is like-kind to vacant land. One exception for real estate is that property within the United States is not like-kind to property outside of the United States. An investor cannot exchange personal property for real property.