1. Like-Kind Property: The Relinquished Property, the property that you sell, will be either personal property or real property, or both. The Replacement Property, the property that you buy, will be either real property or personal property, or both. The real properties must be “like-kind” and the personal properties must be “like-kind” to each other. It means that the properties are “like” in their use or characterization, such as both being used as the business or for investment properties.
2. Business or Investment Property: The second 1031 Exchange Rule says that that the Relinquished Property must be “property held for productive use in a business or for investment or in a trade”. The Replacement Property must be a property “which is to be held either for productive use in a business or for investment or in a trade.” A detailed analysis of which properties meet these criteria is available at Dealer Property and can be expanded on at Intent.
You will be held to the same two-year filing requirement for Form 8824, except that it could turn into three years for you because the period will start to run from the date that you acquire your Replacement Property, and this could be 180 days after the first closing and could cover three tax-filing periods. You are not prohibited from buying Replacement Property from a Related Party, with the same two-year reporting requirement for Form 8824, but it almost guarantees that the IRS will audit the transaction because this is where they find most of the abuse of the Section 1031 Exchange, family members trying to game the system.