For years the 1031 exchange (like-kind exchange) has been one of the most tax efficient investment vehicles available to real estate investors. However, two lesser-known vehicles are giving the 1031 exchange a run for its money. One is the Opportunity Zone and the other is the Deferred Sales Trust.
Over the years, real estate has proven to be a lucrative investment for many households. And, in some parts of the country, current market values have surpassed levels seen prior to the 2008 financial crisis. If your principal residence has appreciated significantly in value, you may be subject to capital gains tax when it’s sold. If your gain will be too big to be sheltered by the federal home sale gain exclusion, you might consider a tax-deferred Section 1031 like-kind exchange. However, this strategy isn’t for everyone, and executing it requires some proactive planning.