How does a 1031 Exchange work ?

[Kate B.]

I'm considering strategies for selling a property in Worcester, MA which has increased in value since I bought it at an estate sale four years ago with cash.

A suggestion from Brian J. Allen was to look at a 1031 exchange while evaluating the advantages/disadvantages of doing a lease option to buy with a potential buyer.  

I've heard of it but don't know much about 1031.  I'd appreciate any views and suggestions.  Thanks!

[Dave Foster]

@Kate B., It all starts with the use of an unrelated 3rd party called the qualified intermediary as @Erin Zamarro states, who documents the exchange on both sale and purchase, ensures proper security and transfer of funds and coaches you through the process.  There's several very specific steps and requirements but nothing that's too onerous as long as you have a QI willing to guide you through the maze.  

You can go to www.the1031investor.com to see how they work together to help you build your portfolio.  And there's a scenario calculator that can help you determine the benefit for you in doing a 1031 on a specific transaction.