Invest Today with a 1031 Exchange
Updated: Mar 12, 2020
Looking to swap out your investment property for a more lucrative one? With a 1031 Exchange, you may be able to do this while paying little to no taxes. Although most swaps are taxable as sales, if yours meets the requirements of 1031, you'll either have no tax or limited tax due at the time of the exchange.
Through the eyes of the US Internal Revenue Service, you can change the form of your investment without cashing out or recognizing a capital gain. This allows your investment to continue to grow tax-deferred. What's more is, there's no limit on how many times or how frequently you can do a 1031 exchange. Therefore, if you plan to move to another state and want your investment property to come with you, you can essentially swap out your investment for another that is closer to your new destination. Although you may have a profit on each swap, you avoid tax until you sell for cash many years later. Then you'll hopefully pay only one tax, and that at a long-term capital gain rate . Currently rates range from 15% to 20%, depending on the income—talk to a tax professional for more accurate rates.
The 1031 Exchange provision is technically for investment and business properties, but the rules can apply to a former primary residence under certain conditions. There are ways you can use 1031 for swapping vacation homes as well, though this loophole is much narrower than it used to be. Again, talk to your tax professional about how you can use a 1031 Exchange to swap your investments.