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How Apples Become Oranges - Using 1031 Exchange in Real Estate

Real Estate Agent with Future Home Realty Florida SL3200947

Using 1031 Exchange to turn your Apples into Oranges in Real Estate. 

This is one of the least understood and yet most valuable tools for investors in real estate.  It can save thousands in taxes and help you swap out an under-producing or not well located property into something better.  One of my clients even turned the Ohio farm that she inherited into a beach front condo in Redington Shores!

So why don't more property owners use the the 1031 Exchange in Real Estate? There are a lot of 'myths' out there about this, let's bust some!

1) The term 'Like Kind Exchange' is often misunderstood. Here's where the 'Apples become Oranges'.  Many people think this means that you have to exchange a house for a house or land for land. This is not true - any income producing real estate - OF ANY KIND - can be swapped for another.  In my clients case, the farm is income producing (nature of most farms) and the condo in Redington Shores is being used as a seasonal rental - lots of income!

2) The value of the properties must be equal.  Also not true. When you use the 1031 Exchange in Real Estate you can trade up to a more valuable piece of property or even divide what you made in the sale and acquire two properties. You can make that rental house in Cleveland turn into two condos in Madeira Beach!

3) The properties are 'swapped' so you must find someone who wants to swap with you. This one I hear a lot.  What actually happens is that you sell the property you want to 'change out', identifying it as a 1031 Exchange transaction.  With those funds being held by a Certified 1031 Exchange Intermediator, you have 45 days to identify a list of properties that you are interested in.  After that you have 180 days to close on the selected property. This last period can be extended and is somewhat affected by the date your tax return is due. 

4) Why do this?  To avoid capital gains taxes which can be quite substantial.  Investors who become adept at the 1031 Exchange in Real Estate are able to turn properties that aren't working for them any more into something that does - and avoid a sizable tax burden in the process.

Of course you should consult with a CPA about your personal tax situation. And it certainly helps to work with a REALTOR who knows this process.  

If you'd like more information and resources about this topic, please send me an email.  Always happy to answer questions.

Bruce Walter
Keller Williams Realty Lafayette/West Lafayette, Indiana - West Lafayette, IN

Lea,  this is a great tool for many real estate investors and information is power!

May 12, 2015 03:43 AM
Lea Lagueux
Future Home Realty - Saint Petersburg, FL
Your Tampa - St Petersburg Local REALTOR

Thank you Bruce - it's truly amazing how powerful this can be, especially in market areas like Florida where people are looking to relocate and often inherit properties. With proper planning, big tax burdens can be reduced or even eliminated.

May 12, 2015 03:56 AM
Roy Kelley
Retired - Gaithersburg, MD

Tell us some stories about your use of 1031 Exchanges.

Apr 10, 2020 05:18 AM
Lea Lagueux
Future Home Realty - Saint Petersburg, FL
Your Tampa - St Petersburg Local REALTOR

To see what some of my clients say about working with me on a 1031 Exchange, see the video on my profie.

Apr 15, 2020 06:12 PM