Can I Buy More Than One Property in My 1031 Exchange?

There is a common misconception that taxpayers who are completing a 1031 exchange can only sell one relinquished property and buy one replacement property, and nothing could be further from the truth. One of the benefits of the 1031 exchange is the ability to use the 1031 exchange strategy to diversify or consolidate your investment portfolio.

Diversification Strategy
Generally, younger investors are trying to trade up in value by selling one relinquished property and buy two or more replacement properties. This will usually provide them with more units, more cash flow and better diversification (risk management).

Consolidation Strategy
The opposite of the diversification strategy is the consolidation strategy. This is often implemented by taxpayers that are apporaching retirement or are in retirement and are tired of the property management headaches involved with owning investment property. It is a very effective life simplification strategy by selling more than one relinquished property and buying fewer replacement properties or properties that are easy to maintain and manage.

Tax Deferred Solution
1031 exchanges allow taxpayers to reposition or rebalance their investment portfolios by selling and buying one or more properties without having to pay depreciation recapture taxes and capital gain taxes. The only downside is that it does require that you buy replacement property in order to defer the payment of your income taxes.

Taxpayers that are not interested in buying more investment properties will need to look for other tax deferral solutions. They might want to consider the Deferred Sales Trust.