1031 Exchange With Land FAQ
The 1031 Exchange is a common strategy to defer capital gains taxes owed on the sale of an investment property. You may not know that the IRS considers raw land to be of like kind with investment properties. That means you can exchange land with all kinds of other real property.
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What Qualifies As Like Kind Property?
For quick reference here is a list of real property investments that are all of like kind:
- Long term rental property
- Short term rental property
- Condo
- Apartments
- Land (even unimproved land)
- Single family home
- Multi family home
- Commercial property
- Any other type of real property used as an investment
Anything listed above can be exchanged for anything else on the list in a 1031 exchange. In order for these to qualify for a 1031 exchange, they must be investments, not used as a primary residence.
Can The 1031 Exchange Be Used For Land?
Yes! Land is considered real property and as long as you follow the proper procedure, it can be exchanged for any other type of real property in a 1031 exchange.
Can Rental Property Be Exchanged With Land?
Yes, rental property and land are both considered real property by the IRS and so are considered like kind.
As long as both the land and the rental property are used for investment purposes only (can’t live there), then you can exchange land for property or exchange property for land.
Can A Building Be Exchanged With Land?
Yes. Again, land is real property so it can be exchanged with any other investment of like kind, such as a commercial building.
And again both the building and the land must be used solely for investment purposes.
Can A Condo Be Exchanged With Land?
Yes. Condominiums and apartments are both real property and can be exhanged with land in a 1031 exchange.
The condo and the land must both be used solely for investment purposes.
Can A House Be Exchanged With Land?
Yes. A house is real property, so land can be exchanged for a house in a 1031 exchange.
The house and the land must both be used solely for investment purposes (you can’t live there).
Can Mineral Rights Be Exchanged With Land?
Maybe. This one is not black and white. Mineral rights can be owned in a variety of ways. Here’s the best resource I’ve found online for determining 1031 eligibility.
Here’s the summary.
There are 3 types of mineral rights: mineral lease, mineral royalty and production payment.
Mineral leases and mineral royalties are both considered real property for federal tax purposes and can qualify for a 1031 exchange with land. They aren’t guaranteed to qualify though, so consult a professional before making any investment decision.
Production payments are not considered real property and so would not be eligible for a 1031 exchange with land (or any other real property).
Can Water Rights Be Exchanged With Land?
Maybe. Water rights, like mineral rights, can be considered real property and can be eligible for a 1031 exchange with other real property. But it’s not guaranteed.
It seems that most U.S. states consider perpetual water rights to be real property. However, if the water rights have any restrictions on amount or duration, they may not be considered like kind with other types of real property.
Definitely consult with a professional before making an investment decision.
Can Stock Be Exchanged With Land?
No. Stocks are not eligible for a 1031 exchange.
Can U.S. Land Be Exchanged For Non-U.S. Real Property?
No. The IRS does not consider real property outside the U.S. to be like kind to real property inside the U.S. You must exchange U.S. real property with other U.S. real property.
Conclusion
The 1031 exchange can be used when selling or purchasing land. The biggest thing to keep in mind is that both sides of a 1031 exchange must be some form of real property used solely for investing purposes.
I have some more information about the 1031 exchange process with examples, and I also have an article with examples that include cash and mortgage boot.
If I didn’t answer your question about land in a 1031 exchange please contact me or comment below so I can add your question to the list!
Happy investing.

2 Comments
Jan Randall
Can I use the sale of my investment/rental home for the cost of building a house on investment land I already own? House and land would be used as an investment rental.
Michael
Probably, yes. The 1031 exchange can be used for new construction of investment properties in many cases. To get a definitive answer for your specific situation it’s always best to ask a professional, which you’ll likely have to do anyways to get all the proper paperwork done for the exchange.