The 1031 exchange, explained.

A tax-deferral strategy under Section 1031 of the Internal Revenue Code. When you sell investment or business real estate and reinvest the proceeds in other like-kind real estate through a qualified intermediary, capital gains tax and depreciation recapture are postponed.

You have 45 days from the sale closing to identify replacement property in writing, and 180 days from the sale (or your tax return due date, if earlier) to close on it. The two periods run at the same time, and weekends and holidays don't extend them.

No. A primary residence doesn't qualify. Homeowners may instead exclude up to $250,000 of gain ($500,000 for married couples) under Section 121 if they owned and lived in the home two of the last five years.

It can, under the IRS safe harbor in Rev. Proc. 2008-16: own it at least 24 months, rent it at fair market value for 14 or more days in each of the two years, and limit personal use to the greater of 14 days or 10% of days rented.

The tax code sets no minimum holding period. The property must be 'held for productive use in a trade or business or for investment,' which depends on your intent and the facts. Many CPAs and exchange companies suggest at least one year, ideally spanning two tax years, and the only IRS-approved timeline is the 24-month safe harbor for homes in Rev. Proc. 2008-16. The shorter the hold, the more likely the IRS will question it.

There's no fixed date, but renting it for only a few months before selling is risky. The IRS and the Tax Court look at whether it truly became an investment: market rent, real tenants, little or no personal use, and rental income and depreciation reported on your return. To be safe, follow the 24-month safe harbor: own it 24 months, rent it at market rent 14+ days in each 12-month period, and limit personal use to the greater of 14 days or 10% of rental days.

Yes, if the home was your primary residence and then became a rental. Under Rev. Proc. 2005-14 you apply the Section 121 exclusion first (up to $250,000, or $500,000 married, if you lived there 2 of the last 5 years) and then defer the rest of the gain, including depreciation recapture, with a 1031 exchange. Because of the 2-of-5-year rule, you generally need to sell within about 3 years of moving out.

The IRS could disallow the exchange and tax the gain. Courts have gone both ways: in Goolsby (2010) owners who moved into their replacement property about two months after the exchange lost, while in Reesink (2012) owners who moved in after eight months won because they had genuinely tried to rent it first. Facts and documentation decide these cases, so talk to your CPA before you sell.

For real estate, almost any U.S. investment or business real property is like-kind to any other: a condo for land, an apartment building for a warehouse. U.S. and foreign property are not like-kind to each other.

Cash or debt relief you receive that isn't reinvested. Boot is taxable up to the amount of your gain. Buying a cheaper property, keeping some cash, or taking on less debt all create boot.

To defer all of the tax, yes. Reinvest all net proceeds and buy property of equal or greater value. You can keep some cash, but that portion is taxable.

The QI holds your sale proceeds, prepares the exchange documents, receives your identification and wires funds to the purchase. Your own agent, attorney, CPA or employee from the past two years cannot serve as your QI.

Qualified intermediary fees commonly run about $600 to $1,500 for a standard delayed exchange, with more for extra properties and $3,000 to $10,000 or more for reverse or improvement exchanges, plus normal closing costs.

Yes, through a reverse exchange. An exchange accommodator takes title to the new property and holds it until you sell the old one, all within 180 days. It costs more and often needs cash or special financing.

Eventually, but carefully. It must first be held for investment. If you later convert it to a residence, you must own it at least five years before you can use the home-sale exclusion, and part of the gain may still be taxable.

No. Florida has no state income tax, so the federal tax is the main concern. If you sell property in another state, that state may still tax the gain, and some, like California, track the deferred gain.

Your heirs generally receive the property with a step-up in basis to market value, so the deferred gain is usually never taxed. Investors call this 'swap till you drop.'

Yes, but FIRPTA generally requires 15% of the sale price to be withheld unless the IRS issues a withholding certificate, which should be applied for before closing.

Yes. A Delaware Statutory Trust interest qualifies as real property for 1031 purposes (Rev. Rul. 2004-86). DSTs are passive and are often used as backup identifications, but they are securities with their own fees and risks.

Yes. A 1031 exchange defers income tax only. Florida documentary stamp tax, title insurance and other closing costs apply to both the sale and the purchase.

IRS Form 8824, Like-Kind Exchanges, with your tax return for the year you sold the relinquished property.