Ask the Hammer: Should I Use 1031 Exchange to Sell One Rental Property for Another?

Key Takeaways

• Always use a qualified intermediary for a 1031 exchange—don't attempt it on your own like an IRA rollover, as mistakes with timing rules are common and costly
• Identify multiple backup properties in advance since you have strict IRS deadlines (45 days to identify, 180 days to close), and if your first choice falls through, you need alternatives ready
• Consider your current tax bracket versus your expected tax bracket when you sell—if you'll be in a much higher bracket later, paying tax now at a lower rate might actually be better than deferring
• A 1031 exchange only works for 'like kind' properties, so if you want to invest in a different property type that will grow more, you may need to pay tax now to access that opportunity
• Work with a tax planning expert (not just a tax preparation expert) who can run forward-looking projections to determine whether the 1031 exchange or paying tax today makes more financial sense for your specific situation