Exchange Investment Property

People exchange investment property for different reasons. If you are an investor, you might want to consolidate your equity by performing a 1031 exchange. If somebody offers you a good deal on your property, and you want to sell it but don't want to pay capital gains tax, you could exchange it for another property and defer the taxes. Or, you could also defer the tax by trading down and doing an owner takeback of a mortgage.

If you would like to exchange investment property this way, you must go through a qualified intermediary, since you can never actually or constructively receive any money for your sale. The QI will handle the escrow as well as the paperwork and simplify the process. The tax code can be complex, but trading investment real estate is easier than it sounds.

Exchange Investment Property: Real and Personal Property
If you own a business, the tax code applies separately to the real property and the personal property. The personal property like equipment, furniture, and computers are more difficult to exchange, because the rules are stricter. For example, you cannot exchange vehicles for furniture. Therefore, it's best to seek the advice of a professional if you want to exchange investment property other than realty.

The best way to take advantage of this tax loophole is to stick with real estate, which is easier to trade and defer capital gains taxes on. Really, this transaction is more of a "rollover" than an actual "trade." It allows you to gain the best return on your investment, without expending a lot of effort--or money.