*** Disclaimer: this is not tax advice- consult an accountant with specific 1031 Exchange questions!
We’re selling NE Ivy St. as an investment property. The price difference of what we bought it for in 2001 and the selling price now would be taxable as a capital gain on our income taxes. The 1031 Exchange allows us to reinvest the money in another property (or multiple properties) without paying capital gains.
Wikipedia has a great synopsis of the way it works.
In a nutshell, we have 45 days from the day NE Ivy closes to identify the property, or properties, we are going to purchase. We have a total of 180 days from the closing date on NE Ivy to close on the new property.
We will never touch the money. It goes from the buyer of NE Ivy to a Qualified Intermediary (also known as an Accommodator). The QI holds the proceeds from the sale until they are transferred to the seller of our new property. Anything that finds its way into our bank account is taxable as a capital gain.
So, the burning question is what to buy? Don’t know the answer. I do know that we are not going to take on any more rentals as a landlord. We will hire a property manager to do that for the foreseeable future.