Can a 1031 exchange really work?

Asked by Maude Moore, 08080 Sat Dec 20, 2008

Considering purchase of rental property or second home in NC or MD beach vacation area. Can't afford beach front - walk to beach is best I can do. Will beach properties remain a strong investment when the market recovers? Possible 1031 exchange if I could sell rental property ski condo but that could take a year. Is 1031 a realistic goal? Saved cap gains could be lost in higher purchase price? Any advice appreciated!

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Dp2, , Virginia
Sat Dec 20, 2008
Short answer: Yes.

A more detailed (and nuanced) answer: The answer to your main question will depend upon what you intend to do. You mentioned you'd like to purchase either a rental or second home (vacation home or new residence?).

By the way, your question, "Will beach properties remain a strong investment when the market recovers?" is a wrong and dangerous one. You'd be buying on speculation--which is a NO NO--if you were to act upon any recommendation(s) to buy now anticipating the future marketability of a property.

Since you'll probably get a lot of advice on buying a second residence from others, I'll focus on a strategy for rentals. First, you made 2 incorrect assumptions: 1) that you couldn't afford to purchase a property along the beach, and 2) that it might take a year to sell your ski condo. You don't know how much bang you'll get for your buck until you put out a few offers. There is a large enough supply of houses on the market, so you really should be able to find something along the beach (if that's what you want).

Second, do you already have an agent? If so, then does that agent specialize in handling 1031 exchanges? If not, then you need to change agents immediately. You need to work with an agent who specializes in handling 1031 exchanges. 1031 exchanges aren't so complex that a non-specialist couldn't figure out how to get the job done. The main reason why you want a specialist is that s/he has a network of relevant contacts (buyers, sellers, etc) for handling these kinds of deals. That specialist should be able to help to pair you up with buyers/sellers such that you should be able to sell that ski condo sooner. That specialist should also be able to quickly produce a marketing plan to help you through all of this.
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Mark Fleysher, Agent, Las Vegas, NV
Sat Jan 5, 2013
In a typical transaction, the property owner is taxed on any gain realized from the sale. However, through a Section 1031 Exchange, the tax on the gain is deferred until some future date (e.g., the future resale of the home you will purchase with the proceeds from the sale of a current property).

To learn more, check out this post:…
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Ernie Curtis, , Daytona Beach, FL
Sun Dec 28, 2008

1031 exchanges do work. There are rules to follow, but the opportunity to avoid taxation on depreciation makes it very worthwhile. A reverse 1031 may be what you are looking for, but the 180 day rules still apply. Basically, your target property is purchased for you by a qualified intermediary through a "qualified exchange accommodation agreement" between you and your qualified intermediary. Within 45 days you must identify this property on a 45-day identification form. The final step is that you must complete the sale of your original property within 180 days, because that is the deadline for transferring your target property from the qualified intermediary to you.

I am in real estate in the Daytona Beach area of Florida. You may want to consider this area for your exchange. If so, I will be pleased to work with you.

Ernie Curtis, Broker Associate
Keller Williams Realty
(407) 567-7962
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Debra B Albe…, Agent, Port St Lucie, FL
Mon Dec 22, 2008

ABSOLUTELY...if you have qualified people working with can build into the home or your dreams...Good Luck! And have a wonderful holiday season!
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