What Is A 1031 Exchange? Should You Use One?

Here we want to teach you all about the incredible—and sometimes risky—power of the 1031 exchange.

You know as with any business venture, when you’re successful, Uncle Sam is there to collect his share. That rhymed—I didn’t even mean to do that.

When it comes to selling a property that you own, chances are, like myself, you’re going to have significant taxes to deal with—especially if you follow the advice that you hear here on BiggerPockets and you bought an incredible deal and now you’re rolling in it. Now thankfully, if you’re paying taxes in the United States, our government provides the 1031 exchange as a way to defer those taxes to a later time—and possibly you can defer them forever.

Keep in mind, this is only for rental property investments. Sorry, house flippers, it doesn’t work for you. All right.

So, a fun way to look at the 1031 exchange is to think of Uncle Sam as a real uncle. Say for some reason you happen to owe your uncle some money when you sell a property. But Uncle comes over puts his big arm around you and says, “Listen here, you did such an awesome job with that real estate deal. I’m proud of you. And look, I know you owe me a bunch of money. But listen, champ, because you did such a super good job, I want you to keep the money you owe me and instead go put that into another deal.”

Source –Bigger Pockets

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