The 1031 exchange treatment can be applied only to transactions involving real property that is used for business. So, you won’t be able to use it to defer taxes on the sale of your primary residence. However, a second residence that you use as a vacation rental may qualify.
A lot of people think you don’t actually have to make the exchange. They think if you just reinvest the proceeds of the sale you can defer taxes under a 1031. But it’s critical to go through the proper process and work with an intermediary. Some people go into it not realizing they can’t touch the money that changes hands during a 1031.
1031 exchanges help many sellers achieve their goals, but they’re not right for everyone. The 1031 exchange process is complicated and requires consultation with the right professionals along the way. Is there a 1031 exchange in your future?