How To Make The 1031 Exchange Work For You

Leveraging Your Ability to use the 1031 Exchange

The 1031 exchange is a popular strategy for "tax deferring" which allows real estate owners who are selling one property and acquiring another as an effective way to defer paying income tax on capital gains generated by the sale of a property. 1031 requires you to re-invest the proceeds in a similar, "like-kind" property. Almost any kind of real property is considered "like-kind" with any other real property.

Section 1031 of the Internal Revenue Code, 26 U.S.C. & 1031, provides:

" No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment."

This recently enacted law closes what was considered a loophole in the Section 1031 rules. In some instances, investors have used the 1031 Exchange to swap their investment property for real estate that could be readily converted to an owner-occupied residential property. After the exchange, they made the property into their principal residence, lived in it for a couple of years, then sold it. With the recently enacted American Job Creation Act of 2004, congress has ruled that properties converted from a 1031 exchange property into a residence must be held and used as a principal residence for at least five years to qualify for the tax exemption. Otherwise, the basic tax-deferring benefits of 1031 exchanges remain the same.

Your Houston Real Estate Investor Connection

As your Houston real estate experts, Meg and Jim Zoller and their staff with The Zoller group have a high degree of market knowledge and experience in this unique investment strategy, your Houston realtors often assist investors using the 1031 Exchange. Contact The Zoller Group today for a brief conversation on the benefits of using this strategy or if you have any questions about how to invest in Houston real estate using the 1031 Exchange.