Can someone with a “real estate professional” designation use a Section 1031 exchange to dispose of property?

by Susan E. S. Howe, CPA | Jun 08, 2018

Can someone who has elected to use the “real estate professional” designation to aggregate rental properties to remove presumption of passive income (thus removing limits to loss applied to active income) still dispose of property using a 1031 exchange? I ask because if I sell property without the 1031 exchange I must pay regular taxes, not capital gains taxes.

A Section 1031 exchange is available to any type of entity (individual or business) that exchanges like-kind property used in a trade of business. So, a rental property potentially qualifies for this treatment, whether or not it is treated as a passive activity. The rules involved with like-kind exchanges are complex and very exacting. I recommended that any like-kind exchange be facilitated by a qualified adviser who specializes in these transactions.

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Answered by: Susan E. S. Howe, CPA, is principal of Howe Advisory in Strafford, Pa.

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