What does "Like Kind" mean?

In a 1031 nonrecognition transaction the property exchanged must be of like kind. With respect to real estate, the regulations define like kind property quite expansively. As used in Section 1031(a), the words ‘like kind’ have reference to the nature or character of the property and not to its grade or quality.  One kind or class of property may not, under that section, be exchanged for property of a different kind or class. The fact that any real estate involved is improved or not improved is not material, for that fact relates only to the grade or quality of the property and not to its kind or class.  For example, the regulations specifically approve an exchange of urban for rural real estate, the exchange of a thirty year leasehold for real estate, and an exchange of improved for unimproved real estate.

The regulations have been understood to permit the exchange of any real property for any other real property.