In a 1031 exchange, you need to hold your like-kind property with a “qualified purpose.” But what does that mean?

A qualified purpose means that you are holding the property either as an investment or for use in your trade or business.  This means that you cannot do a 1031 exchange on your family home because this family home is being held primarily for personal use.

To avoid making a costly mistake before you sell, you should make the proper arrangements with an experienced qualified intermediary first so that the transaction is treated as a trade or exchange (rather than a sale and repurchase) to be sure that you qualify for maximum tax savings. Often deals are done informally without much of a contract or closing; a good QI can help add-back in the structure to make the deal work.