The internet blurs this constantly, so here is the clean answer. The land side of a ground lease is fee-simple real property — it qualifies for a 1031, full stop, no minimum term. The tenant side needs 30+ years remaining. And the move almost nobody covers: you can sell the land under your own building, keep the building, and 1031 the proceeds.
The under-used version of the 1031 is the bifurcated one. You do not have to sell the property to do an exchange — you can sell the layer of it you monetize with a ground lease:
| Step | How it works |
|---|---|
| 1. Sell the fee | We buy the land under your building — typically 30–40% of total property value, priced off the income, not the tax card — and lease it back to you for 99 years. |
| 2. Exchange the proceeds | The land is real property, so the sale proceeds can ride a standard 1031 into any like-kind US real estate: another building, a different market, a passive leased-fee position. 45 days to identify, 180 to close, qualified intermediary in place before closing. |
| 3. Keep everything else | The building, the operations, the promote, and 100% of the building’s depreciable basis stay with you. The ground rent is a deductible expense covered 3–4x by the property’s income. |
Why bother: it converts trapped, dormant land equity into diversified, tax-deferred real estate — without giving up the asset you actually operate. If you do not need the deferral, the straight sale is lightly taxed anyway: land carries no depreciation recapture. See the land-sale tax page.
The land side always does: a leased fee is fee-simple real property, like-kind to any US real estate regardless of the lease’s length. The tenant side qualifies only when the leasehold has 30 or more years to run, counting renewal options (Treas. Reg. 1.1031(a)-1(c)); the Tax Court rejected an exchange of a 21-year-4-month leasehold (VIP Industries, T.C. Memo 2013-157).
Yes. The land under your building is real property; selling it to a ground-lease investor is a sale of real estate, and the proceeds can be exchanged into any like-kind US real property under the normal 45-day and 180-day rules with a qualified intermediary in place before closing.
Yes — a leased fee is real property, so it qualifies as 1031 replacement property. It behaves like a bond collateralized by the building above it: ground rent covered 3-4x by the property’s income, fixed escalations, nothing to manage.
The usual suspects: no qualified intermediary before closing, blowing the 45/180-day clocks, taking receipt of the cash, or exchanging into a leasehold with under 30 years remaining. The leased-fee side has no special traps — it is ordinary real property.
The exchange math starts with what the land is worth — typically 30–40% of property value, priced off income. Send the address and the NOI; an indicative land value comes back fast, and your QI and CPA take it from there.
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