What Can You Buy with a 1031 Exchange? A Landowner’s Guide to Reinvestment Options

If you’re a landowner thinking about selling a farm, ranch, or vacant acreage, you’ve probably heard about the 1031 exchange — a powerful tool that lets you defer capital gains taxes by reinvesting the sale proceeds into another property.

Most people assume you have to trade “land for land” — and while that’s certainly common, the IRS allows much more flexibility. Under 1031 rules, the key requirement is that you exchange into “like-kind” real property used for business or investment. That opens the door to many more reinvestment options than most land sellers realize.

Let’s break down what you can (and can’t) exchange into — and how smart landowners are using this strategy to grow or reposition their portfolios.

What Does “Like-Kind” Really Mean?

The term “like-kind” refers to the nature or character of the property, not the type, size, or location. For real estate, that means almost any kind of investment or business-use property can be exchanged for another—as long as it’s real property and not held for personal use.

So yes, selling cropland and buying an apartment building qualifies. Selling ranchland and buying a commercial warehouse? Also fine.

✅ What You Can Buy in a 1031 Exchange

Here are some of the most common options for farmers, ranchers, and rural landowners:

1. Other Land

• Raw land (vacant or unimproved)

• Timberland

• Dryland, pasture, or brush country

• CRP-enrolled land

🔁 Strategy: Sell less-productive land and upgrade into irrigated, income-generating acreage or land closer to home.

2. Improved Agricultural Property

• Farmland with pivots, wells, barns, fencing

• Ranches with livestock infrastructure

• Ag properties with grain bins or cold storage

🔁 Strategy: Scale up by acquiring better-equipped land that’s already producing income.

3. Residential Rental Property

• Single-family rentals

• Duplexes or multi-family housing

• Farmworker housing or rural Airbnb units

🔁 Strategy: Transition into rental income as part of retirement planning or passive income diversification.

4. Commercial Real Estate

• Equipment storage buildings

• Self-storage units

• Rural retail buildings (e.g., co-ops or feed stores)

🔁 Strategy: Exchange into leased property with reliable tenants for consistent cash flow.

5. Mixed-Use Property

• Farmland with rental homes

• Ranches with vacation cabins

• Hunting land with lodging

🔁 Strategy: Combine lifestyle use with rental or ag income.

6. Fractional Ownership (TICs & DSTs)

• TIC (Tenant-in-Common): Co-own part of a large investment property

• DST (Delaware Statutory Trust): Own a passive share in institutional-quality real estate

🔁 Strategy: Ideal for landowners looking for truly hands-off, professionally managed income streams.

🚫 What You Can’t Buy in a 1031 Exchange

• Primary residences

• Property held for resale (flips or inventory)

• Personal property like tractors, cows, or equipment

• Real estate held overseas

• REITs, stocks, or mutual funds

The replacement property must be U.S.-based, real estate, and held for investment or business purposes.

🔄 Real-Life Examples

🧑‍🌾 Farmer: Dryland to Income

Sells 320 acres of dryland wheat for $960,000 → uses a 1031 to buy a 200-acre irrigated hay farm + duplex rentals. Keeps all equity working.

🐄 Rancher: Land to Passive Income

Sells a 1,000-acre leasehold → rolls into a Delaware Statutory Trust with ag lease income. No land to manage, just monthly checks.

🔧 Tips to Make a 1031 Exchange Easier

Many landowners are intimidated by 1031 rules, but with some smart planning, the process is very doable. Here’s how to make it go smoothly:

✅ 1. Line Up a Qualified Intermediary (QI) Early

You legally cannot touch the money from the sale. A QI handles the funds and paperwork, so involve one before closing on your sale.

✅ 2. Have Backup Properties Identified

You only have 45 days to identify replacement property. Inventory can be tight, so it’s smart to:

• Have 2–3 backup properties lined up

• Consider broader asset types (e.g., rentals, DSTs)

• Be ready to move quickly

✅ 3. Use the “3 Property Rule”

You can identify up to three replacement properties—even if you only buy one. This gives flexibility and keeps you compliant.

✅ 4. Keep an Eye on Deadlines

There are two key deadlines:

• 45 days to identify properties after your sale closes

• 180 days to complete the purchase

✅ 5. Talk to a Tax Advisor Before You Sell

A tax professional can:

• Help structure the sale properly

• Clarify what qualifies as “investment use”

• Ensure you don’t accidentally trigger taxes

Final Thoughts: 1031 Exchanges Let You Reinvest, Not Just Sell

Selling land doesn’t have to mean giving up a big chunk to taxes. Whether you want to expand your operation, build passive income, or retire with less stress, a 1031 exchange lets you keep more of your money working for you.

With the right team and a clear plan, it’s not only doable—it might be the smartest financial move you make.

Thinking About Selling and Exchanging?

If you're considering a land sale and want to explore 1031 exchange options, I'm here to help—from listing strategy to connecting you with trusted QIs and identifying solid replacement properties.

📞 Contact me today to talk through your goals. There's no pressure—just good information.