Most of us consider retirement planning when considering saving instruments like 401(k)s or IRAs. In addition to allowing us to save for retirement tax-deferred, these plans will also provide us with a substantial source of income once we retire.

However, a 1031 exchange may be a good income strategy to consider if you own investment property.

Capital gains can be deferred on investment properties when you sell them and reinvest the proceeds into the like-kind property under the Internal Revenue Code. Here are some tips for securing one’s retirement.

Landlords have limited responsibilities.

There are no significant responsibilities for landlords. Capital gains taxes are excluded if the taxpayer holds the property for at least five years and if the property is not used as a principal residence. The exclusion applies to 3/5ths of the gain if, for example, a property is acquired in a 1031 exchange, rented out for two years, and then the taxpayer lives in the property for three years before selling.

The 1031 tax-deferred exchange offers investors significant opportunities to diversify, consolidate, or rearrange their real estate holdings while deferring capital gains taxes.

Regular passive cash flow

You can secure your retirement now with regular passive income.

Multi property diversification

In your will, you can step up the basis of property you leave to your heirs. When you die, the property’s basis is adjusted to its fair market value. Assuming you purchased a property for $100,000 and held it until your death when it was worth $1,000,000, your heirs would have a basis of $1,000,000 and would only pay taxes on any gains above the initial value of $1,000,000.

By doing so, 1031 can maximize the amount you’re able to leave behind for the next generation. Plan for your retirement and death by getting the right financial advice, and keep abreast of any changes to laws that may affect your plans.

Finding the right QI for your exchange

A single exchange or multiple exchanges may be planned; you may be exchanged from an operating business to a triple-net lease or direct sales transaction; you may be selling a multifamily apartment building and using the proceeds to fund your retirement expenses; you may plan to live in a single-family investment property before selling it; you may intend to keep your investment property until you die. Every exchange you conduct requires a Qualified Intermediary, regardless of the scenario.