When it comes to selling a piece of property, any gain you realize is taxed as a capital gain. Capital gain taxes can be quite costly, which can make it discouraging for many people. What many don't realize is that you can avoid the capital gains tax when you're selling a rental property if you opt for a 1031 rental property exchange. Here's a look at some of the things that you should know about these tax exchanges and what they mean.

Are There Limits To How Many Times You Can Do A 1031 Tax Exchange?

You might be hesitant to take advantage of a 1031 tax exchange when you're selling your current rental property solely because you're afraid of using up your one chance to take advantage of this credit, you don't need to worry about that. The truth is that, provided you meet the ownership requirements (usually after a couple of years), you can claim a 1031 rental property exchange as many times as you qualify.

Does A 1031 Rental Property Exchange Require A One-For-One Property Switch?

If you're familiar with 1031 tax exchanges for residential properties, you know that they are usually a one-for-one swap of your primary residences. When it comes to rental properties, that may not always be the case. As a result, you might wonder if you can sell one rental property and invest that money in multiple replacement properties, or sell several rental properties and use that money to invest in one single property. In fact, there are no quantity restrictions on a 1031 rental property exchange. You can, in fact, swap one property for multiples or multiple properties for one. 

Do You Have An Intermediary?

If you are giving any consideration to a 1031 rental property exchange, you need to appoint an intermediary to serve as the financially responsible party. This intermediary receives the money from the initial sale, and then they transfer that money in the subsequent purchase. That way, the money never actually reaches your possession. This is a key factor in a 1031 exchange because if the money is ever in your possession, you'll be liable for the taxes.

These are some of the things that you should know about a 1031 exchange with your rental properties. Talk with a real estate tax professional as soon as possible for more guidance and help along the way. This will help to ensure that you get the tax benefit you're looking for. For more information about rental property 1031 tax exchanges, contact a local service.