The first step in determining if you qualify for a 1031 exchange is determine if your property is held for investment or used to produce income.  These are the only types of properties that can be exchanged.  Rental property always qualifies, as does vacant land.  Vacation or second homes can qualify if they are held for investment purposes.

If the property you will be selling does qualify for the exchange, you need to determine what you wish to achieve by selling.  If you are planning to reinvest the money into other investment properties, an exchange will probably work for you.  If you want to buy a new primary residence, it may or may not work.  If you want to use the proceeds to pay for your grandson's college tuition, an exchange is probably not an option.

There are specific time frames that must be met when exchanging your properties.  If you think a 1031 exchange might work for you, talk to your real estate agent, accountant, and /or financial advisor before listing your home to ensure the exchange time frames will work for your specific circumstances.

There are so many ways to make a 1031 exchange work based on your specific needs it would be impossible to make a list that identified all of the circumstances it will work under.  As a rule of thumb, if you have an investment property to sell and want to purchase one or more additional investment properties with a value equal to or more than the sale price of your current property, a 1031 exchange may be a way to defer any taxes due on the sale.

Contact Joanne Hanson for more information on how a 1031 exchange can work in your situation.

 Please Note:  Joanne Hanson and The Mountain Living Team are neither accountants nor tax advisors and, while are knowledgeable about the 1031 exchange, they do not substitute for your financial advisor.