In this episode of Ask Joe, Attorney Joe Seagle explains what a 1031 exchange is and how it benefits investors. A 1031 exchange allows investors to defer capital gains tax and depreciation recapture tax by replacing an investment property with another property. Joe highlights the importance of holding the replacement property for at least two tax years and ensuring it is held as an investment property, not a second home. Renting out the property and advertising it as a rental is crucial to prove its investment status. After holding the property for two years, it can be converted into a primary residence, potentially allowing for the primary residence exclusion on capital gains tax.
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