The 1031 Exchange is a relatively simple transaction to shelter a tax liability on the gains from sale of a property. If you are planning to reinvest and purchase like property, the 1031 exchange can be a worthwhile way to defer the tax penalty on the profits from the sale of another property.
Aside from hiring an ‘Exchange’ company to handle to escrow so that the funds are properly transferred to avoid issues with the IRS. Who wants that? The exchange company will work with the escrow company to allow your proceeds from one sale to be help until your purchase is secured. The property sold and purchased DO NOT have to be in the same location, the same city, or same state. There are certain criteria which much be met in order to properly reinvest the proceeds from the one sale into the purchase of another property of like kind to be used as a rental property. You’ll want to discuss specifics with your agent and the escrow and exchange company if the property purchased will be used as a vacation rental where you will spend some time there as owner occupant. There are limitations to the time frames for certain circumstances.
As the economy continues to grow, the 1031 exchange is an ideal way to defer tax gains until a later time when you liquidate the investment. When you are looking for investment property, you’ll want to evaluate the cash flow as well as the current market climate in the area. It can be advantageous to move from one market to another to take advantage of where the local market is appreciating. When looking for a long term investment, considering the rental market and the local economy.