Yes, vacant land can qualify for a 1031 exchange.
A 1031 exchange, named after Section 1031 of the U.S. Internal Revenue Code, allows an investor to “swap” one investment or business property for another and defer the capital gains taxes that would otherwise be owed from the sale of the first property. The purpose of this provision is to encourage the continuation of investment and reinvestment in business or investment properties.
For a 1031 exchange to be valid, there are several requirements that must be met:
- The property being sold and the property being acquired must both be held for use in a trade or business or for investment. Properties used primarily for personal use, like a home, don’t qualify.
- The property being acquired must be “like-kind” to the property being sold. This is a broad category that allows, for example, the exchange of an apartment building for a shopping center, or raw land for a rental property.
- There are certain time restrictions in a 1031 exchange: the investor has 45 days from the date of the sale of the original property to identify potential replacement properties, and the closing on the replacement property must occur within 180 days of the sale of the original property.
As long as the vacant land was held for investment or use in a trade or business and not for personal use, it should qualify for a 1031 exchange. However, specific circumstances can be complex, and professional advice should be sought to ensure all rules and regulations are followed.