Keep in mind that there’s no limit on the number of times Lisa can use a 1031 exchange. She could use this strategy to continuously roll over her profits from the sale of investment real estate without ever having to pay capital gains tax. Then, when her heirs inherit her properties, they’d receive what’s known as a step-up in basis. This means that if the sell the property at that time, they won’t have to pay capital gains tax either!

There are specific IRS rules which must be carefully adhered to qualify for the deferred capital gains tax. The sale must take place through an intermediary. Title companies are one such option and when coupled with the use of a Real Estate Agent, the easiest. The new asset must also be identified within 45 days of the sale of the current asset and the sale must conclude within 180 days. Finally, the asset must be held for over 1 year before it is eligible for use in a 1031 exchange. Investors use the 1031 exchange to buy and sell assets as new opportunities present themselves, while shielding themselves from immediate capital gains liability.