I was just wondering if any of you guys/gals have any experience in exchanging a 1031 rental property into a business (let's say a franchise). Would that be an "in-kind" exchange?
Nope, real estate for real estate.
If your goal is to defer capital gains tax on the sale and use the (as yet) untaxed sales proceeds to buy the business then you can accomplish this with a monetized installment sale. This could work out if there is a substantial amount of capital gain.
With a monetized installment sale, you sell for cash, netting about 93.5% of the sales proceeds, and the capital gains tax is deferred for 30 years. I can provide a fuller explanation but that's quick summary.
it has to be like-kind.
1031 and a franchise business are not likekind.
However, you may want to see if you can exchange the rental property into a land that you can rent to a franchisee.
@Rudy T. , @Basit Siddiqi hit on it. Franchise fees, licensing, equipment and good will are not exchangeable. However, if you're looking at an existing franchise that owns the land and building, or if you are looking to buy a new franchise and want to place it on land or in a building that you own then that would be a great 1031 opportunity. As @Wayne Brooks said, the 1031 is real estate for real estate only.