Section 1031 of the Internal Revenue Service tax code permits real estate investors to defer paying taxes on the sale of investment properties, as long as the proceeds of the sales are used to buy other investment properties of equal or greater value. Thus, 1031 exchanges are a popular way to enhance your investment-property portfolio.

However, there are rules for 1031 exchanges that must be followed in order to realize their benefits. Before you sell your duplex and put an offer on the apartment complex up the road, make sure you play by the rules of the IRS. Here are some tips recently presented by the Wall Street Journal:

Don't sell your home . Only investment properties qualify for 1031 exchanges, not personal residences.

Find an intermediary . In most cases, an intermediary handles the transaction. Banks, title companies, and specialty firms all can act as intermediaries.

Watch your timing . You must identify and inform an intermediary before you sell your investment property.

Count your days . After the sale of your property, the IRS gives you 45 days to identify the property you want to buy with your profits and 180 days to complete that transaction. You may identify up to three properties within the 45-day period-at this point you don't need a contract on any of them. Whichever property you end up purchasing must come from this list.

Like any real estate transaction, 1031 exchanges have terms and deadlines that must be met. Planning and research will make it easy to follow the rules and grow your investment.

- Texas Realtor, March 2005.