If you are preparing to sell your home, you might consider if your property is eligible for a 1031 exchange. Generally speaking, a 1031 exchange allows a taxpayer to defer payment of capital gains on the sale of a property if they reinvest the proceeds of that sale into a property of “like-kind” within 180 days. In other words, if you “swap” your existing property for a new property, you can defer paying capital gains tax on the sale of your first property.
1031 exchanges are intended for investment properties, however they can be used for a former primary residence or second home under very specific circumstances. Namely, if you stopped using the property being sold and rented it for fair market value for a period of time before the exchange, it may qualify as an investment property. Similarly, you may not use the new property you are purchasing as your primary residence for a period of two years.
There are many intricacies of 1031 exchanges. Castle advises you to consult a tax professional or refer to IRS publications before attempting a 1031 exchange.
If you execute a property “swap” (i.e. sell one property and purchase another) that meets the requirements of Section 1031, you’ll either have no capital gains tax or limited tax due at the time of your property sale.
Claimed as a capital gains tax deferment.
How to Claim
Required Information
Timeline
FAQs
