How To Do A Tax-Free Exchange

I recently found this image going around social media.  Be careful where you get your news from!  Know that when I write you a letter, I'm the one who wrote it (for better or for worse).

In the previous email we talked about WHY you might want to do a tax-free exchange (1031).  Now let's talk about HOW.

Many people know about the (typical) forward exchange. In this exchange, after you sell the relinquished property, you have 45 days to identify a potential replacement property. You’ll then need to close on the replacement within 180 days.

Timing can be tricky, but it depends on the market you're in. In our current Austin market, it's easier to buy than sell, so after you sell your property it's not hard to find a new property to buy.  However say it's a seller's market. In that case it would be easy to sell but you'd be under the gun in those 45 days trying to find a property to buy. That would have been a problem in 2020.

Because of situations like this, you have other options, like a reverse exchange where you buy the replacement property before you sell.  And know that it doesn't have to be all or nothing. You can do partial exchanges, and you can also exchange a few properties into one, or exchange one property into several. Lots of options (maybe too many), but your real estate professional and your 1031 qualified intermediary should be able to talk you through this and help you figure out the best strategy.

Thinking of selling an investment property?  Reply and let me know - I’d be happy to talk through your options and help you progress in your real estate journey.