Intro on Replacement Property
The property you are selling or have sold in a 1031 exchange is referred to as the Relinquished Property, while the property you will acquire with the proceeds is called the Replacement Property. To qualify for a 1031 exchange the Relinquished Property needs to have been an investment property or one held in a trade or business. Likewise, the Replacement Property needs to be an investment or business property. Generally speaking, in an exchange, you may sale any type of investment property and replace it with any other type of investment property. For example, you can sell land and buy an office building; sell an office building and buy an apartment complex, or sale an industrial building and buy a retail strip mall or raw land. You can sell one property and replace it with one, two, three, four, or more properties. By way of illustration, you could sell 100 acres of farmland and buy two rental homes, an office condominium, two Family Dollar Stores, and a Post Office leased to the federal government.