A 1031 link-kind exchange is a powerful tool. The process allows you to defer capital gains taxes on investment real-estate while reinvesting your money into new real-estate. But just because you’re selling a rental house doesn’t mean that you need to exchange it for a rental house.
“Like-kind” refers more to its use than its type. Any type of investment real-estate can be exchanged for any other kind of real-estate used for investment. Real-estate located in the United States can only be exchanged for real-estate in the United States and a select few U.S. territories. Real-estate outside the United States can be exchanged for other investment real-estate outside of the U.S.
If you meet those requirements you have an immense amount of freedom when it comes to choosing a replacement property. Your like-kind property can be located in any state or city whether you currently reside there or not. If you are getting bored managing a vacation rental you could even make the switch from residential to commercial and choose a business warehouse as a replacement property. With a 1031 and some creativity you have an immense amount of power to shape your portfolio for your benefit.