Taxes rarely make for exciting reading material, but if you own an investment property, there’s at least one set of IRS regulations you absolutely will want to understand: 1031 Exchange Rules. Why? Because normally when you sell an investment property for more than what you paid for it, you’d have to pay a hefty capital gains tax.
But with a 1031 Exchange, you get to defer paying those taxes if you reinvest the proceeds in a new property, making an “exchange” rather than a sale. You are able to leverage funds otherwise needed to pay capital gains taxes to acquire more desirable property. As the name implies, a 1031 Exchange is a swap of one investment property for a like-kind property instead of a traditional sale.