Short answer: Yes. Vacant land held for investment or business use qualifies for a 1031 exchange and is like-kind to any other US investment real estate, including rental buildings. Land held primarily for sale, such as lots you subdivide and market, doesn't qualify. Construction after you take title to replacement land doesn't count toward the exchange.
Reviewed by Jon Hilley. Last updated September 29, 2026.
Yes. Land is real property, and under the 1031 exchange rules raw land held for investment is like-kind to any other US real estate held for investment or business. You can do a 1031 land exchange for land, sell land and buy a rental building, or sell a building and buy land.
The catch is how you hold the land. Land you bought to hold for appreciation, farm or lease out qualifies. Land you are subdividing, developing and selling off in lots is usually dealer inventory held primarily for sale, and that doesn't qualify.
Key rules
- Land is real property: land and unsevered natural products of land are real property for 1031 purposes (Treas. Reg. §1.1031(a)-3).
- Like-kind to any real estate: vacant land can be exchanged for a building, and a building for land (Treas. Reg. §1.1031(a)-1(b)).
- Must be held for investment or business: land held primarily for sale, such as subdivided lots you are marketing, doesn't qualify (IRC §1031(a)(2)).
- Building after you close doesn't count: improvements made after you take title to replacement land aren't part of the like-kind property received (Treas. Reg. §1.1031(k)-1(e)(4)).
- Normal deadlines: identify within 45 days and close within 180 days (IRC §1031(a)(3)).
Investment land versus dealer property
The IRS and courts look at the facts: how long you held the land, whether you subdivided or improved it, how often you sell property, and how you marketed it. A family that has held farmland for decades is an investor. A builder who buys a tract, puts in roads and sells lots is usually a dealer.
If you're somewhere in between, such as an investor who got zoning approvals to make the land more valuable, talk to your CPA or tax attorney before listing. The answer can affect whether any exchange is available.
What kinds of land qualify for a 1031 exchange?
Raw land, farmland, ranch land and timberland held for investment or business use all qualify, and they are like-kind to each other and to buildings. Interests in land such as easements and mineral or water rights can also be real property, though some depend on how the interest is structured, so confirm yours with your CPA (Treas. Reg. §1.1031(a)-3). A leasehold with 30 years or more to run is like-kind to land you own outright (Treas. Reg. §1.1031(a)-1(c)).
Equipment, livestock and harvested crops sold with a farm are personal property and don't qualify. Land you use personally, such as a lot for your own future home or a recreational parcel only you use, is also hard to support as investment property.
Exchanging land into a rental property
Land isn't depreciable, so exchanging it into a building often adds depreciation deductions you didn't have before. The replacement's basis carries over the deferred gain and is split between land and building, and only the building portion is depreciated.
Building on the replacement land
If you want to exchange into land and construct a building, a standard exchange won't cover the construction. Anything built after you take title is treated as your own money, not exchange property. An improvement (build-to-suit) exchange solves this: an exchange accommodation titleholder holds the land while improvements are built with exchange funds, and only what is in place when you take title by day 180 counts.
Example: vacant land into a duplex
- Sale price of land held 10 years: $600,000
- Selling costs: $30,000
- Amount realized: $570,000
- Adjusted basis (original cost, no depreciation): $150,000
- Realized gain: $420,000
- Duplex purchase price: $700,000
- Exchange funds applied: $570,000
- New loan: $130,000
- Recognized gain: $0
The land had no mortgage, so reinvesting all $570,000 of net proceeds into a more expensive property defers the full $420,000 gain. Assuming a 15% federal capital gains rate ($63,000) plus 3.8% net investment income tax ($15,960), that's $78,960 of federal tax deferred; state tax is not included. The duplex's basis is $280,000 ($700,000 minus $420,000 deferred gain), divided between land and building for depreciation.
You can model your own sale with the 1031 exchange calculator.
Other questions investors ask
Which type of property does not qualify for a 1031 exchange?
Your primary residence, property held primarily for sale (such as lots a developer is selling off), foreign real estate exchanged for US real estate, and assets that aren't real estate, such as equipment, stocks and partnership interests. See what property qualifies for a 1031 exchange.
Common mistakes
- Subdividing before selling. We see landowners split a parcel, put in improvements and sell lots over several years, then ask about a 1031 exchange. By then the land may look like inventory.
- Planning to build after closing. Investors often buy replacement land expecting construction costs to count toward the exchange. They don't, unless you use an improvement exchange.
- Vague identification. Rural parcels without street addresses need a legal description or parcel number on your identification form.
Related questions
- What property qualifies for a 1031 exchange?
- Can you 1031 exchange commercial property into residential?
- Can you do a 1031 exchange on the sale of a business?
- Can you do a 1031 exchange on a rental property?
- Can you use a 1031 exchange for new construction or improvements?
- Browse all 1031 exchange guides
