what is a 1031 real estate exchange

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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 my investment property without 1031 exchange?

  • It actually possible to sell an investment property and satisfy the 1031 exchange rules without using all of your sale proceeds. This is called a partial exchange. However, buying a replacement for a lower cost than the original property sale price or taking out less financing will result in taxes.

  • Can I do a 1031 exchange on a beach house?

  • Example: You stop using your beach house, rent it out for six months or a year, and then exchange it for another property. If you get a tenant and conduct yourself in a businesslike way, you’ve probably converted the house to an investment property, which should make your 1031 exchange alright.

  • 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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