2. A taxpayer seeking to exchange property has to buy the exact same type of property he is selling in order for it to be considered a “like-kind” exchange.
As long as both the property to be sold and the property to be purchased are held for productive use in a trade or business, or for investment purposes, taxpayers are free to purchase whatever type of property they want. For example, a taxpayer can sell an apartment building and exchange it for an industrial warehouse. Although exchanges are a creation of federal law, taxpayers must also look to state law to determine what is considered real property. Based upon state law, some non-traditional interests in real property such as development rights, air rights and timber rights can also be exchanged in the process.
