What is the like-kind property requirement in a 1031 exchange?

• A. The properties must be identical in size
• B. The properties must be similar in use and nature
• C. They must be located in the same city
• D. They must have the same purchase price

Answer: (B)

The fundamental idea is that the like-kind rule focuses on the nature of the property, not its size, location, or price. In a 1031 exchange, both properties must be of the same general character—investment or business real estate—so they are considered like-kind to each other. This allows swapping a rental property for another investment property, such as a rental house for an office building, as long as both are held for investment or business purposes. Size, location, and purchase price aren’t the determining factors.