Taxpayers can use both a 1031 Exchange AND the 121 primary tax exemption to create “The Great Real Estate Tax Break.” In an article written by John Starling, Northern 1031 Exchange Senior Vice President, he outlines detailed examples of properties that could combine these two tax codes for maximum savings. For example, real estate owners who convert their primary residence to a rental and exchange within two years, can combine the codes. In addition, real estate owners who occupy a portion of a multi-unit as a primary residence and rent out the remaining units can also combine the tax codes.

One important thing to keep in mind though, Starling points out, is that it is essential to understand the tax liability, tax basis and ownership structure. He recommends consulting with a CPA or tax preparer as well as a Qualified Intermediary, who is a certified exchange specialist, to help guide you through the process and ensure a smooth and successful exchange.