When it comes time to sell your Investment property and there is financial gain, then expect to pay Tax on the gain at the time of Sale.
“IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange.”
1031 Exchange allows you to temporarily defer the gain if you purchase another “like-kind” Investment Property under specified guidelines. A replacement property must be of equal or greater value to the selling Property and it must be the same Title holder and Taxpayer.
This can be a great tool that allows you reinvest your gains tax deferred back into the Real Estate Market for potentially a larger property and/or more profitable investment. There are many rules that need to be adhered to during this process in addition to hiring 3rd party Exchange Accommodator.
The process is one I have successfully navigated many Clients through over the years.
For additional information visit: https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips