How To Swap Real Estate And Defer Taxes, Maybe Forever

A tax-savvy way to improve your real estate situation is to swap one property for a new one. Called a 1031 exchange, referring to its section of the tax code, this works so long as you are switching business properties. Personal residences aren't eligible.

While 1031 exchanges are often used by big commercial real estate operators, there's nothing stopping you from using the strategy for much smaller-scale holdings. The maneuver defers capital gains taxes, perhaps forever.

The nice thing about 1031 exchanges is that you aren't confined to the exact same type of property. So, you can swap a condominium for a farm, or a house for a marina — as long as it's a business or investment property. You'll need expert advice on this issue.

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This article was written by a professional financial journalist for Cardinal Capital Management, LLC and is not intended as legal or investment advice.

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