One of the points of confusion about 1031 exchanges is with the terminology of what exactly the word “exchange” means. Because of this confusion, a common misconception is that one must swap properties with another person, but that is incorrect. There is no need to find someone to trade properties with to do a 1031 exchange. Instead, you are merely trading your investment property for another.
Despite the terminology, if one is selling a house, he or she does not necessarily have to find somebody else that has a rental house and trade properties. What a 1031 exchange does is it allows one to sell his or her interest in one property, which we call the relinquished property, and invest those proceeds in a new property called the replacement property. The result is a deferral of the capital gains taxes that he or she would have paid on the sale of the relinquished property. There is no requirement that the person you sell your investment property to must be the same person that you buy from.
So, all that one does is take the interest that he or she owns in a rental house and transfer that interest into a new house. There is no requirement that one must find a partner to trade with or that a swap occurs. There is no need to be worried about that. In fact, with a 1031 exchange, really you are just swapping one property you own for another.
If we can help you with a 1031 exchange or if you have questions take a look at the videos on the WealthBuilder 1031 Exchange YouTube channel, or give us a call at 888-508-1901 and we would be happy to help you.