1031 Property Exchange

A 1031 property exchange will allow you to sell your rental property investment without having to pay capital gains taxes. The property must be "like-kind" - that is, you can't buy a home for you to live in, but can sell a rental house and buy a multi-unit building.

There are many reasons to use a 1031 property exchange in addition to tax deferral. If you use the Rent to Own method eventually one of your tenants will actually buy the property. Another reason to do a 1031 exchange may be if you relocate and want your rental properties to be nearby.

1031 property exchanges are not complicated but you have to follow the law exactly. You cannot handle the funds and so the exchange requires an intermediary. There are strict time limits imposed on how soon you must have a new property under contract and close. You also are limited as to your ability to walk away with cash or "boot" from the transaction.

You can read more about 1031 exchange rules here. Eventually you or your estate will have to pay taxes on the gain of course. But better to pay them at a time of your choosing when the impact to you will be the least.

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