Several characteristics can make properties ineligible for a 1031 exchange:
Non-Like-Kind Properties
The IRS disqualifies exchanges where the properties are not of like-kind. For instance, domestic properties cannot be exchanged for international properties. Additionally, the exchange of machinery, artwork, collectibles, and other intangible assets is not permitted under 1031 exchange rules.
Personal Use Properties
Properties used for personal purposes, such as a primary residence or vacation home, do not qualify for a 1031 exchange, as properties must be used for productive business or investment purposes.
Property Values and Purpose
the replacement property’s value is lower than that of the relinquished property, the investor will need to pay capital gains taxes on the difference, known as boot. Furthermore, real estate held primarily for resale, including properties intended for renovation and subsequent sale, does not qualify for a 1031 exchange.