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1. The new property must be of like kind
Although the term ”like kind” is less restrictive than it may sound, there are a couple of key provisions.

The new investment must be real property that is held for productive use in a trade or business or an investment property. In addition, real property held in the United States must be exchanged for property also held in the U.S.

But there’s no requirement that the new property be of the same type. For example, an apartment rental investment can be exchanged for an industrial property, office building, or any other type of property—as long as it meets the “productive use” test. 

2. You have a limited window to select and purchase a new property
The second essential requirement of the 1031 exchange provision is a window of time to identify the new property and a second time frame to close the transaction.

The first key date is 45 days. You must designate a specific property that will be used to complete the exchange within 45 days of the original sale’s close.

The second key date: You have a total of 180 days from closing the original sale to closing the subsequent purchase.

Note that the 180-day time frame is not affected by the date the replacement property is selected. To mitigate the risk of a purchase failing to close, you may designate more than one property as a potential replacement. These properties can serve as a backup plan should the desired transaction fail to close. 

Additional rules apply to such designations, but that’s where the simple idea of the 1031 exchange gets nuanced and complex. You’ll need help from a pro.