It’s possible to move from one property to another without the double process of selling a current home and buying a future one. A smart investor can even add value with the process, known as a 1031 exchange.
Section 1031 of the U.S. Internal Revenue Code allows property owners to exchange a piece of real estate for a different one and defer taxes on any capital gains due to the change in value. This is often an attractive option to real estate investors seeking a limited portfolio.
One of the limits to 1031 exchanges are properties known as “stock in trade.” Large-scale real estate investors may be considered dealers, making their property a normal business stock they would maintain. This also applies to real estate developers.
Property owners are not allowed to exchange an investment property for a personal residence, but it may work the other way around. Several developments in Florida are geared specifically toward 1031 exchanges, including one recently completed just outside Orlando.
New developments, especially in growing areas, may be attractive for people looking to build value based on a property they already own and are looking to divest without the normal sales process. Properties near popular amenities and areas of high job growth are often good options.
Real estate transactions including 1031 exchanges are often made easier and more secure when buyers, sellers and exchangers have legal representation. An attorney can help property owners establish if they can engage in a 1031 exchange and if it is the best step for their financial and home ownership goals.