Know the tax rules on sale of exchanged property

5-year rule is barrier for some owners

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The lackluster housing market has many investors looking for bargain properties, sometimes in bunches. Buyers are getting more creative about funding their purchases, rethinking the role of real estate not only for their portfolios but also for their residences.

In a recent example, an older couple sold their home and purchased two Arizona golf-course condominiums with the proceeds — one for their primary residence and another as a rental — and still put some money in their pocket. What made the deal interesting was that they had purchased the original home six years ago via a tax-deferred exchange.