Turn Investment Properties Into Lifestyle Assets — Tax Deferred
In 2025, real estate investors are going beyond asset management — they’re executing forward-thinking strategies that preserve capital while aligning with long-term lifestyle and wealth goals.
At the center of these plans is the 1031 Exchange: a powerful tax-deferral tool that allows investors to reinvest the gain from the sale of investment property, defer capital gains taxes, and transition into real estate that supports both financial and personal objectives.
Homebuying Investment Trends from 2025 IPX1031 Survey
In May 2025, IPX1031 surveyed over 1,000 prospective homebuyers and uncovered revealing attitudes toward investment properties – particularly growth in rental property investments and the use of vacation homes as strategic assets:
- 62% of rental property buyers plan to use a 1031 Exchange to defer taxes and maximize reinvestment.
- 11% of homebuyers are entering the market specifically to diversify and build rental portfolios for passive income.
- 9% of homebuyers are focused on second or vacation homes with future personal use or retirement in mind.
- 38% of vacation property buyers are seeking beach or tropical markets, while 64% are buying out of state, often targeting lifestyle-enhancing locations.
> Takeaway: More investors are combining return-focused purchases with long-term personal goals — and 1031 Exchanges are helping them do it tax efficiently.
These findings underscore a shift: homebuyers are looking beyond traditional primary residences. They see real estate as a strategic combination of lifestyle, legacy, and smart financial planning — and 1031 Exchanges are a key part of that equation.
From Investment to Personal Use: Planning Your Future Home
While 1031 Exchanges apply only to business or investment-use real estate, the IRS allows for eventual personal use as long as specific rules are followed. Under Revenue Procedure 2008-16, you can acquire a property via 1031 Exchange today and convert it to personal use later. To qualify for this “safe harbor”:
- Rent the property at fair market value for at least 14 days per year during each of the first two consecutive years post-exchange.
- Limit personal use to no more than 14 days per year or 10% of the total days it was rented.
- After this holding period, the property can be transitioned into a full-time residence, second home, or vacation retreat.
Learn more about converting investment property to personal use >
From Personal Use to Investment: Make Your Property 1031 Exchange-Eligible
If you own real estate that was primarily used for personal use, you may be able to reposition it for a 1031 Exchange, provided it meets IRS requirements for investment use. To qualify:
- You must have owned the property for at least two years.
- It must have been rented at market rate for at least 14 days per year during each of the last two years.
- Personal use must not exceed 14 days or 10% of the rental period annually.
Learn how to make your second or vacation home eligible ›
Maximize Tax Deferral: Combine Section 121 + 1031
The most tax-savvy investors often combine Section 121 (the primary residence exclusion) with a 1031 Exchange — particularly when a property has served as both a home and a rental. Here’s how:
- Use Section 121 to exclude up to $250,000 (single) or $500,000 (married) of capital gain from the sale of a primary residence.
- Use a 1031 Exchange to defer any remaining gain that exceeds the Section 121 exclusion.
If you acquire a property through a 1031 Exchange and later convert it into your residence, you must hold the property for five years before becoming eligible for a pro-rated Section 121 exclusion.
Explore the benefits of combining 121 and 1031 >
1031 Exchange Eligible Property Types: Broad and Flexible
“Like-kind” in a 1031 Exchange is broadly defined. As long as property is held for investment or business use, a wide range of real estate qualifies for a 1031 Exchange:
- Multifamily units
- Retail, office, or industrial buildings
- Farmland or raw land
- Triple-net leased (NNN) assets
- Hospitality, storage, and mixed-use developments
- Second homes or vacation properties (if structured as investment)
This wide scope allows investors to shift between asset types while still executing strategic 1031 homebuying goals.
Smart 1031 Strategy for Lifestyle and Legacy
In 2025, the data speaks clearly: investors are reimagining homeownership — for income, legacy, and lifestyle. A 1031 Exchange isn’t just smart — it’s essential. With proper planning, compliance and IPX1031’s guidance, you’re not just buying or selling your property — you’re engineering your financial future.
Read More & Resources
How to Buy Your “Dream” Home with a 1031 Exchange PDF
Converting a 1031 Exchange Property into a Primary Residence PDF
How to Buy a Future Primary Residence, Second Home or Personal Vacation Property with a 1031 Exchange
How to Make a Personal Use Vacation or Second Home Eligible for 1031 Exchange Property
Converting Your Primary Residence Into Investment Property PDF
Combining IRC §1031 and §121
Qualified “Like-Kind” Property
Do Vacation and 2nd Homes Qualify
Taxpayers are always advised to consult with their tax and legal advisors regarding the exchange status of a property.
IPX1031. The best choice for your 1031.
We, at IPX1031, pride ourselves on not only being an industry leader in expertise, service and security, but we also strive to help our clients and their advisors keep current on tax issues pertaining to §1031 Exchanges and applications for them. We aim to be your complete information resource. For more information about us, visit our website at www.ipx1031.com, browse our complimentary webinars, or to initiate an exchange, fill out our online start a 1031 Exchange form to get started
