Facts about 1031 Exchanges

If you are considering a 1031 exchange—or are just curious—here is what you should know about the rules.

KEY TAKEAWAYS

• A 1031 exchange is a tax break. You can sell a property held for business or investment purposes and swap it for a new one that you purchase for the same purpose, allowing you to defer capital gains tax on the sale.
• Proceeds from the sale must be held in escrow by a third party, then used to buy the new property; you cannot receive them, even temporarily.
• The properties being exchanged must be considered like-kind in the eyes of the IRS for capital gains taxes to be deferred.
• If used correctly, there is no limit on how frequently you can do 1031 exchanges.
• The rules can apply to a former principal residence under very specific conditions.