Understand Real Estate Like Kind Exchanges

A Section 1031 is also known as a like kind exchange. If you have a property that has gone up in value and/or been depreciated for a number of years, you are going to have gain when you sell. You may not want to pay tax on all of that right now. That’s where the like kind exchange comes into play.

You can roll the basis of the property you’re selling into another property that you purchase. There are a lot of rules that go along with it, but the basic idea is that it has to be an investment property that you’re selling and you need to buy one or more properties that total up to the amount you’ve sold your investment for.

The IRS now lets you exchange and roll over that basis into a personal residence. The key is that you need to own the property for the next five years. You can then sell the property and get up to $500,000 in tax free gains (if you’re married filing jointly).

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