1031 Exchange Strategy takes center stage in Real Estate Investing

That's important if you're flipping a piece of property to buy a vacation house you'd like to rent now and live in later. A vacation home can be disqualified as a like-kind property if you occupy it for more than 14 days a year. Even though there's no firm rule about how long you must maintain the property as an investment, experts recommend at least two years. "There better be a clear intent for investment purposes," cautions Max Hansen, president of the Federation of Exchange Accommodators(FEA), a 1031 industry trade group.

• What help you need?

Here's the reason 1031 exchanges aren't do-ityourself projects: You cannot sell a property and then buy another directly. Instead, you must use a middleman, who sells the property on your behalf, buys the next one and then transfers the deed to you.

According to IRS rules, neither your attorney, accountant or broker nor certain other pros you do business with can be your middleman. Nor can a parent, child or sibling. Those restrictions have spawned an industry devoted to 1031 exchanges "qualified intermediaries" (QI) or exchange accommodators" who are often affiliated with title companies. Their services cost from $250 to $1,000 (or more for a complex or multimillion-dollar deal).

There's no professional accreditation for these pros, although many belong to the FEA (916-388-1031; www.1031.org), which is establishing a credential for QI's. Before you hire a pro, ask for references and make sure he or she has insurance-- both fidelity and errs-and-omission, which cover you against fraud or negligence by the QI.

• Why time is critical?

Within 45 days of closing on your old property, you must identify up to three potential replacements by sending a written notice to the seller or your QI. Then you have another 135 days to complete the purchase. If the tax-filing deadline falls earlier, that's your deadline. But you can extend it by filing for an extension on your taxes.