Looking to upgrade an investment property but nervous about taxes? Let's break down how to use a 1031 exchange (Like-Kind Exchange) and avoid taxes altogether! No capital gains tax!

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No doubt about it, taxes suck! Being a CPA (Certified Public Accountant) I want to do everything I possibly can to legally avoid or defer my taxes. If you are looking to sell an investment property and buy a different one, one of the best ways to defer your taxes is to use a 1031 exchange (like-kind exchange). You won't have to pay capital gains tax when you use a 1031 exchange!

Using a 1031 exchange is a complicated tax strategy. You should consult a qualified CPA with experience in these transactions before attempting to do a 1031 exchange.

There are 2 ways to do a 1031 exchange.
1. Find someone who wants to buy your property that has the investment property you'd like to buy and simply exchange properties.
2. Use a third party intermediary to hold the cash from your sale and then have them purchase your new investment property for you.

Let's break down the rules of a 1031 exchange:
1. The properties have to be like-kind. Meaning they need to be in the same asset class. You have to trade real estate for real estate. Trading equipment for real estate won't qualify.
2. Cash from the sale of your house goes to the third party intermediary (otherwise you'll be taxed).
3. Within 45 days from selling your property, provide in writing to the third party intermediary the replacement property you wish to purchase.
4. Within 180 days of selling your property, close on the replacement party.

If you receive any cash when all is said and done, the IRS will recognize that as a gain and you will be taxed on it. A 1031 exchange can be used an unlimited number of times. This can defer your capital gains tax for a long time and keep money in your pocket.

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