Can you do a 1031 exchange with raw land?

Yes. Section 1031 applies to real property held for productive use in a trade or business or for investment, and unimproved land held for investment qualifies. Land is also like-kind to essentially any other investment real property, so you can exchange raw acreage for an apartment building, a retail center for farmland, or land for land. The property type is almost never the obstacle — holding intent is.

What is dealer property and why does it disqualify a 1031 exchange?

Section 1031 expressly excludes property held primarily for sale. Property acquired to resell rather than to hold — a flip, a subdivision built for sale, inventory in a development business — is dealer property, and gain on it is ordinary income rather than capital gain and is ineligible for exchange treatment. The classification attaches to the taxpayer's purpose for that property, not to the property itself, so the same tract can be investment property to one owner and inventory to another.

How does the IRS determine holding intent on land?

There is no single test; it is a facts-and-circumstances analysis. Factors that have mattered in practice include how long the property was held, why it was acquired and whether that purpose is documented, the frequency and number of the taxpayer's sales, how much development or subdivision activity the taxpayer undertook, how actively the property was marketed, whether the taxpayer is in the real estate business, and how the property was treated on prior returns. Longer holds, minimal improvement activity and contemporaneous documentation of investment purpose all help.

Why does exchanging into land often create boot?

Because land usually cannot carry the debt the property you sold carried. Lenders underwrite unimproved land conservatively — lower loan-to-value, shorter terms, higher rates — because it produces no income to service debt. If you sold a leveraged income property and buy land with little or no debt, that debt relief is mortgage boot and is taxable even though you reinvested every dollar of equity. The fixes are to add cash, acquire land that supports meaningful debt, pair the land with an income asset in the same exchange, or use an improvement exchange to build value with exchange funds.

Can I exchange into a covered land play?

Yes, and it is a natural fit. A covered land play — a property with an existing income-producing use whose real value is in future redevelopment — gives you an asset that qualifies as investment property, produces some income to service debt, and holds land value. That combination addresses both the holding-intent question and the debt-replacement problem better than raw acreage does. The caution is the same as always: if your plan is to entitle and immediately resell, you are edging toward dealer treatment on the next sale.

1031 Exchange · September 25, 2026 · Steven Owen

1031 exchanges and land: raw acreage, covered land plays, and the holding-intent problem

Land qualifies for a 1031 exchange, and it is like-kind to almost any other investment real property — you can exchange a retail center into raw acreage, or farmland into an apartment building. The property type is rarely the problem. Two other things are. First, Section 1031 expressly excludes property held primarily for sale, so a developer or flipper can find that the tract they consider an investment is treated as inventory, taxed as ordinary income and ineligible for exchange treatment. Second, land usually cannot carry the debt your last property carried, which quietly creates mortgage boot. Both are solvable, but only in advance.

Why land is such a flexible exchange target

Since the 2017 tax act limited Section 1031 to real property, the like-kind test for real estate has been generous: virtually any real property held for productive use in a trade or business or for investment is like-kind to any other. Quality, grade and improvement level do not matter. That means an owner exiting a management-intensive asset can move into unimproved land, and an owner sitting on appreciated acreage can move into an income property, without the exchange itself being in question.

For Central Texas owners this matters because so much of the wealth here is in land that has appreciated enormously against a tiny basis. A tract bought decades ago for agricultural use can carry a gain that makes an outright sale genuinely painful — capital gain plus the 3.8% net investment income tax — while an exchange moves that value into an income-producing asset without the toll.

The real risk: held for investment, or held for sale?

Section 1031 does not apply to property held primarily for sale. This is the dealer exclusion, and it is where land exchanges actually fail. Gain on dealer property is ordinary income, not capital gain, and it cannot be exchanged.

Crucially, the classification attaches to the taxpayer’s purpose for that property, not to the property itself. The same fifty acres can be investment property to a family that has held it for thirty years and inventory to a builder who bought it last spring to subdivide. There is no bright line and no holding period written into the statute; it is a facts-and-circumstances test. Factors that recur in the analysis:

Factor	Points toward investment	Points toward dealer
Holding period	Years	Months
Purpose at acquisition	Documented intent to hold	Acquired with a resale plan
Frequency of sales	Occasional	Many, continuous
Development activity	Little or none	Subdivision, platting, infrastructure built for sale
Marketing effort	Passive or unsolicited offer	Active sales program, signage, agents retained
Taxpayer’s business	Not in the real estate trade	Developer, builder, wholesaler
Prior tax treatment	Reported as investment property	Reported as inventory

No single factor decides it. The practical guidance is to document investment purpose contemporaneously rather than reconstruct it later, avoid heavy subdivision and sales activity on property you intend to exchange, and — if you are in the development business — hold genuine investment property in a separate entity with a separate, consistent tax history. This is a conversation for your CPA before the sale, not after.

The debt problem nobody plans for

Full deferral requires replacing both value and debt. Land is bad at the second one. Lenders underwrite unimproved land conservatively because it generates no income to service debt: lower loan-to-value, shorter terms, higher rates, and sometimes no appetite at all. An owner who sells a leveraged income property and buys raw acreage largely for cash has shed debt, and that relief is taxable mortgage boot even though every dollar of equity went into the purchase.

Four ways through it:

Add cash. Cash contributed to the replacement purchase offsets mortgage boot dollar for dollar. Simple, and it requires liquidity outside the exchange.

Buy land that carries debt. Entitled land, land with an existing income use, or land with seller financing can support meaningful leverage.

Pair land with an income asset. Acquire two replacement properties in one exchange — an income property that carries the debt, and land that absorbs the equity. The 200% identification rule exists for exactly this.

Use an improvement exchange. Park the land with an exchange accommodation titleholder and spend exchange funds on site work and vertical improvements, raising the replacement value with pre-tax dollars. See reverse and improvement exchanges.

Covered land: usually the better answer

A covered land play — a property with an existing, modest income-producing use sitting on land whose real value is in future redevelopment — solves both problems at once. An older building on a corridor that is rezoning around it, a small retail strip on an irreplaceable corner, a mobile home park or an RV site on land that is worth more empty: all produce enough income to support debt, all read cleanly as investment property, and all preserve the land appreciation that motivated the exchange in the first place.

Central Texas has produced a lot of these. Corridors where jurisdiction or zoning is changing — the US 290 corridor, the transit corridors in north-central Austin — create situations where the improvements are nearly irrelevant to value and the dirt is the whole thesis. We have written about both: impervious cover by jurisdiction on the 290 corridor and Austin TOD vs. ETOD zoning.

One caution. If the plan is to entitle the land and resell it promptly, you are walking back toward dealer territory on that next disposition. Exchanging into a covered land play is clean; exchanging in and flipping out in eighteen months after a rezoning invites the question.

Exchanging out of land

The reverse trade is just as common and often more urgent: an owner with a large, appreciated, non-income-producing tract who is tired of paying taxes on an asset that pays them nothing. An exchange moves that value into something that produces income without triggering the gain.

Two planning notes specific to Texas land. If the tract carries an agricultural or open-space valuation, selling or changing use can trigger a rollback assessment of additional property taxes — a state and local matter entirely separate from the federal exchange, and one to price before you go to market. And if you are selling only part of a larger holding, how the parcel is divided and when that division happens can bear on both the dealer question and the exchange mechanics. Sequence those decisions with your CPA and counsel before the property is listed.

How SCORE helps

Steven Owen is an Austin commercial real estate Agent whose core practice is land — valuation, jurisdiction, utilities and entitlement across Travis, Hays, Williamson and the surrounding counties. SCORE prices land on what it can actually support, sources replacement assets that satisfy both the value and debt requirements, structures exchanges into covered land where that beats raw acreage, and works alongside your CPA on the holding-intent and rollback questions that belong to them. See development land, 1031 exchange services and what your land is worth to a developer.

Exchanging into or out of land?

Send us the address or the acreage. We’ll value it, tell you what it can carry in debt, and lay out replacement options that do not leave you with a boot surprise.

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This article is general information for commercial real estate owners and investors, not tax or legal advice. Section 1031 is federal tax law and its application depends on facts specific to you and your property. Before starting an exchange, engage a qualified intermediary and confirm treatment with your CPA or tax counsel — SCORE Property Group and Steven Owen are real estate professionals, not tax advisors, and do not act as a qualified intermediary. Authorities referenced: Internal Revenue Code §1031 as amended by the Tax Cuts and Jobs Act (real property only, effective 2018) and left unchanged by the One Big Beautiful Bill Act signed July 4, 2025; Treas. Reg. §1.1031(k)-1; Rev. Proc. 2000-37; Rev. Rul. 2004-86; IRS Form 8824. Verified as of September 25, 2026. Dealer versus investor classification is a facts-and-circumstances determination with significant tax consequences and should be evaluated by your CPA or tax counsel for your specific situation before any sale. Texas agricultural and open-space valuation rollback taxes are a separate state and local matter. Related: How a 1031 exchange works in Texas · Boot and debt replacement · Reverse and improvement exchanges · What development land is worth in Austin.