House Swapping with Section 1031?

ABC News recently ran a piece about the emerging trend of house swapping, where home owners trade properties as a way of circumventing the tough market in home sales.

The expert interviewed was Wendy Bounds of the Wall St. Journal and Good Morning America. Bounds said that one of the possible benefits of a house swap was the deferral of capital gains taxes, presumably under Section 1031.

She failed to note, however, that 1031 exchanges are limited to property held for “productive use in a trade or business or for investment,” and do not include personal residences.

Home owners who are considering a trade should learn more about 1031 exchanges before counting on deferring their capital gains taxes.

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