According to a feature story on Yahoo’s home page yesterday, many folks around the country are turning to house swapping to move properties in hard markets. Originally a practice utilized primarily for vacation homes, house swapping works by matching relocation clients with similarly valued homes. Any difference in value is to be paid in cash to balance the deal. While this is definitely creative, I see many obstacles in this practice becoming anything close to mainstream. First, it severely limits the selection of homes available to buyers in that you can only choose from homes whose owners are willing to swap. Second, the differences between median home prices in different parts of the country will essentially rule out swapping as a viable option. Finally, this is being additionally marketed as a method to defer capital gains taxes under the 1031 exchange rule. I think the IRS will take issue with that considering that tax deferral under 1031 rules applies only to investment properties.
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