How to upgrade your investment portfolio tax-free with a 1031 exchange!




investment properties

What is a 1031 exchange and how can it help me avoid taxes?

Simply put, a 1031 exchange allows a property owner to sell investment property, buy replacement property, and defer the tax that would normally be due upon the sale.

Although the transaction itself is not terribly complicated, there are several rules around the exchange, most notably:

  • You must prepare for the exchange in advance of any closing as funds need to held and distributed by an intermediary.
  • You must identify the replacement property in writing within 45 days of the sale of the original property.
  • You must complete the purchase of the replacement property within 180 days of the sale of the original purchase. 

What types of properties qualify?

Both the relinquished and replacement properties must be held for investment purposes or for use in a trade or business.

Can I sell my primary residence in a 1031 exchange?

No. Primary residences do not qualify, however it is possible to convert a primary residence to investment property in order to have it qualify for a 1031 exchange. 

Does my second home qualify for a 1031 exchange?

Possibly. If you meet all the following criteria, you may be able to do a 1031 exchange on your second home:

  • You owned the property for at least 2 years.
  • The property was rented for at least 14 days (at fair market value) in each of the prior 12 month periods prior to the exchange.
  • The home was not used for personal purposes for more than 14 days or 10% of the rental period of those two 12 month periods.
An example for how using a 1031 exchange for your next investment purchase allows you to grow your portfolio faster:

Investment Property Sale

Traditional Sale

Sale Utilizing

1031 exchange

Sale Price of Relinquished Property



Capital Gains Taxes (25%)



Funds Towards Replacement Property



Value of New investment property



Don't know where to start?

We can help you with your 1031 exchange sale and purchase!

Minna Reid with Killebrew and Company Realty was amazing! I did my whole buying process from overseas while on deployment and she was the only reason the process went as well as it did. She is very thorough. communicates very well, and will go above and beyond for you! Best realtor I've ever had! I will be using her again in the future for my next investment property buy.


Last Updated on June 22, 2023 by Minna Reid


June 22, 2023

How to upgrade your investment portfolio tax-free with a 1031 exchange!

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