How to Use 1031 Exchanges to Set Yourself up for Retirement

1031 Exchange Retirement

How can a 1031 exchange help you turn your investment property into your dream retirement home?

Let's say that you sell an industrial property in New Jersey for $4 million and you take your gains (your equity) from that sale and reinvest it into a condo in Palm Springs. That condo in Palm Springs will need to be held for investment or business purposes for a substantial period of time after conducting the exchange. But once you’ve satisfied the holding requirement you may have a long-term indeterminate intention as to what you're going to do with the property. Perhaps you'll retire to Palm Springs, kick the tenants out of the property, and eventually convert the property to your principal residence.

Intentions Are Important

The key here is that you want to be able to substantiate that your exchange was valid and that your initial intention when you acquired the property qualified for 1031 - that you intended to hold it for investment or business purposes.

Eventually, down the line your intentions may change and you may convert that property to your personal use. Once you've satisfied the section 121 principal residence exclusion requirements you may be able to eventually sell that replacement property as your principal residence and exclude a portion of the $500,000 exclusion for married couples or $250,000 for individuals on the sale of your now principal residence. This requires a great degree of coordination with your accountant and your qualified intermediary so have the conversation with your professional advisers first and lay the groundwork for eventually having a dream home.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.


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