The Definition of "Investment"

One of the basic requirements of a 1031 exchange is that you have to hold both the old property and the new property for investment. So what is the definition of “investment”?

Investment property is a very broad category. In fact, it generally includes any real property that is not your personal residence.

Examples of investment property include rental houses and condominiums, bare land, commercial office or warehouse space, apartments and farm land.

When evaluating 1031 exchanges, the IRS will most often look to the exchanger's intent for owning the property. Two common ways to establish investment intent are to establish rental income for the property or to establish a strong case for holding the property for a time while it appreciates in value.

In IRC Section 1031, the IRS also outlines that property held for productive use in a trade or business qualifies for 1031 exchanges. For example, the land and building for a restaurant are held for business use or land used by a rancher for grazing cattle.