what is a 1031 exchange in real estate

Best answer


The 1031 Exchange is aStarker Exchange or Like-Kind Exchange. It is the tax deferment strategy utilized by the real estate investor for financial success. Now in the year 2021, it has become a major aspect of real estate.

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  • What is a 1031 exchange and how does it work?

  • Basically, a 1031 exchange allows you to avoid paying capital gains tax when you sell an investment real estate property if you reinvest your profits into another similar property within a certain period of time. So let say you bought a real estate property five years ago.

  • Can I sell a 1031 exchange property as a principal residence?

  • Now, if you acquire property in a 1031 exchange and later attempt to sell that property as your principal residence, the exclusion will not apply during the five-year period beginning with the date the property was acquired in the 1031 like-kind exchange.

  • How many like-kind properties can you buy on a 1031 exchange?

  • When you do a 1031 exchange, the IRS limits how many like-kind properties you can identify during the 45-day period. The most popular rule, the three-property rule, allows you to identify up to three properties of any value with the requirement that you buy at least one of them.

  • How often can you do a 1031 tax swap?

  • There’s no limit on how frequently you can do a 1031. You can roll over the gain from one piece of investment real estate to another and another, and another. Although you may have a profit on each swap, you avoid paying tax until you sell for cash many years later.

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