Yes. Any real property held for investment can be exchanged for any other real property held for investment: a 12-unit apartment for a single-family rental, a duplex for vacant land, a house for a strip mall. "Like-kind" refers to the nature of the asset (real property), not the type of building.
Like-kind means the asset, not the building type
A single-family rental house is like-kind to a 200-unit apartment complex. A parking lot is like-kind to an office tower. Farmland is like-kind to a retail shopping center.
Under IRC Section 1031 - the rule that lets an investor sell one investment property, buy another, and defer the capital-gains tax - "like-kind" means real property for real property. That is the entire test. The IRS doesn't sort real estate by residential versus commercial, improved versus unimproved, large versus small, or one unit versus a hundred.
Two things fall outside it. Property located outside the United States is not like-kind to domestic property. And anything that isn't real property, such as personal property, equipment, or vehicles, doesn't qualify at all.
Common cross-type exchanges
A few pairings that come up often:
Relinquished property | Replacement property | Qualifies? |
|---|---|---|
Single-family rental | Duplex or fourplex | Yes |
Fourplex | 20-unit apartment | Yes |
Apartment building | Single-family rental(s) | Yes |
Residential rental | Commercial office | Yes |
Multifamily | NNN retail | Yes |
Apartment building | DST interest | Yes |
Duplex | Vacant land | Yes |
The pattern holds across the board: any combination of real property held for investment qualifies.
Scaling up: single-family to multifamily
This is the most common cross-type exchange. An investor sells a $400,000 single-family rental and exchanges into an $800,000 fourplex, adding a mortgage to cover the difference.
Here is what happens mechanically: the tax on the single-family gain is deferred, the full equity carries over as the down payment on the fourplex, and the unit count and rent roll rise at once. Many investors repeat the pattern over years, scaling from one or two houses into a small apartment portfolio.
The debt on the replacement (the property you buy) must equal or exceed the debt on the relinquished property (the one you sell), or the shortfall becomes mortgage boot - the part of a deal that gets taxed. Selling a free-and-clear single-family rental and buying a fourplex with a mortgage is fine, because adding debt doesn't create boot. But sell a property with a $200,000 mortgage and buy one with a $150,000 mortgage, and the $50,000 drop in debt is boot unless you add $50,000 in cash.
Scaling down: multifamily to single-family
Less common, but perfectly valid. An investor sells a 10-unit apartment building and exchanges into three single-family rentals in different markets.
Why scale down? Geographic diversification, simpler management, markets the investor expects to appreciate faster, or positioning individual properties for eventual sale or conversion.
The 3-Property Rule fits this naturally: identify up to three replacement properties of any value. Exchanging into more than three homes means falling back on the 200% Rule (the total value of the properties you identify can't exceed 200% of your sale price) or the 95% Rule (you must close on 95% of the value you identify).
One property into many, or many into one
You can exchange one property into several replacements, or fold several sales into a single replacement.
One into many: sell one apartment building, then identify and close on three single-family rentals. For full deferral, the combined value of the replacements must equal or exceed your sale price.
Many into one: sell three single-family rentals and roll all the proceeds into one apartment building. Timing is the hard part. Every sale has to be linked to the same exchange through your qualified intermediary - the third party that holds your proceeds between the sale and the purchase so the swap qualifies - and the 45-day and 180-day windows run separately from each sale. That coordination is why these exchanges typically run through an intermediary experienced in multi-property deals.
Watch points
Boot from trading down. Exchange a $1M apartment building into a $600K single-family rental and the $400K difference is taxable boot. Full deferral requires equal or greater value.
Entity consistency. The taxpayer that sells has to be the taxpayer that buys. If your LLC owns the apartment building, that same LLC must acquire the replacement; you can't sell from the LLC and buy in your own name. The exception is a single-member LLC, which the IRS disregards for tax purposes.
Mixed-use properties. If you live in one unit of your multifamily, that unit doesn't qualify for 1031 treatment. Only the investment portion does, so allocate the value accordingly.
Financing complexity. Financing a single-family rental is simpler than financing a 20-unit apartment, and the reverse holds too. Whatever you're buying, the lender has to be able to close within the 180-day window.
The like-kind rule imposes almost no restrictions on property type, so you can exchange freely across residential, commercial, and land. The real constraints are economic (equal or greater value for full deferral, and same or greater debt) and procedural (the deadlines, and the same taxpayer on both ends). Scaling up, scaling down, or shifting property types entirely all fit within it.
Frequently asked questions
Can I exchange a single-family rental for a commercial building?
Yes. Residential-to-commercial and the reverse are both fully permitted. "Like-kind" means real property for real property, with no restriction on property type.
What if the replacement property has fewer units and lower income?
Unit count and income don't affect 1031 eligibility. The test is equal or greater value and debt. You could exchange a 20-unit building into a single-family rental as long as the values line up, or accept boot on the difference.
Can I exchange my half of a jointly owned property?
If you own the property as tenants-in-common, each co-owner can independently run a 1031 exchange on their share. If it's held in an LLC or partnership, the entity is the taxpayer, and individual partners generally can't exchange their membership interests, though some structuring exceptions exist.