1031 Exchange

A 1031 exchange allows a property owner to sell a property for a gain and reinvest the total proceeds of the sale into another “like-kind” property while deferring the taxes on the gain from selling the original property to a future date. A 1031 exchange is one of the few techniques available to postpone or potentially eliminate taxes due on the sale of qualifying properties. By deferring the tax, you have more money available to invest in another property. In effect, you receive an interest-free loan from the federal government in the amount you would have paid in taxes. It is similar to investing in a 401K retirement plan at your job, where you can put your earnings in pre-tax and only pay taxes when you cash in those stocks at a point in the future, except in real estate you can keep exchanging and trading up deferring taxes much farther into the future.