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Hi Foolucky:

Now an advantage is to let the income property grow in value. Do tax free exchanges on these properties. Then one day buy a place you'd like to live. Rent it out for 2 years, remodel it then move in and live for at least 2 years. Then that place is free of cap gains tax.

So sorry to burst your bubble but if you ever intend to live in the property as a principal residence you have broken the "rules" of a Section 1031 exchange and thus the tax will not be deferred. The rules for the exchange are very broad about the type of investment property but very specific that it can NEVER be intended for personal use.

Have people done this and gotten away with it? Of course! People commit tax fraud all the time and get away with it but I would REALLY not be advocating that kind of thing to people asking advice! And if Dave takes your advice and is having a cup of coffee with an accountant that recommends this I would find another accountant...FAST!!

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