If you’re considering a 1031 exchange it’s important to know if your investment real estate is eligible.
A 1031 exchange gives investors a way to defer paying tax on gain from the sale of investment real estate. This means that primary residences do not qualify for a 1031 exchange. A 1031 exchange is solely for real estate held for productive use in business, trade or for investment.
House flipping is also off limits. Section 1031 states that a property “held primarily for resale” does not qualify. This excludes fix and flips.
The good news is that like-kind, as defined by the IRS statute, allows for any type of investment real estate to be exchanged for any other kind of investment real estate. This means that if you’re selling a rental condo and want to use the proceeds of that sale to purchase a retail building, you are free to do so.
The power of a 1031 to shape your real estate investment portfolio using your own tax dollars is limited only by your creativity and desired outcome.