What Is a 1031 Exchange?
A 1031 exchange is a tax-deferral strategy that allows real estate investors to sell an investment property and reinvest the proceeds into a new “like-kind” property—without paying capital gains taxes at the time of sale.
It’s named after Section 1031 of the Internal Revenue Code, and it’s one of the most powerful tools for building long-term wealth through real estate.
Why Use a 1031 Exchange?
- Defer Capital Gains Taxes
Save up to 20–30% in federal and state taxes by reinvesting instead of cashing out. - Grow Your Portfolio Faster
Leverage untaxed equity to upgrade into higher-performing or larger properties. - Diversify Geographically or by Property Type
Exchange a single-family rental for a duplex, or move your investment into a more promising market. - Improve Cash Flow
Trade out of underperforming properties into better cash-generating assets. - Estate Planning Advantage
Heirs receive a stepped-up basis, potentially eliminating deferred taxes altogether.
What Qualifies as “Like-Kind” Property?
“Like-kind” doesn’t mean identical. In the eyes of the IRS, it means any real property held for investment or business purposes.
Examples of qualifying exchanges:
- Rental home → Apartment building
- Vacant land → Retail property
- Office building → Industrial warehouse
Not allowed:
- Primary residence
- Property held for resale or flipping
- International properties
Step-by-Step: How a 1031 Exchange Works
1. Sell Your Investment Property
You list and sell your property as usual—but instead of taking the cash, the proceeds go directly to a Qualified Intermediary (QI).
2. Identify Replacement Properties (Within 45 Days)
You have 45 calendar days from the closing of your sale to identify up to three potential replacement properties in writing.
3. Close on the Replacement Property (Within 180 Days)
You must close on your new property within 180 calendar days of the sale of your original property.
4. Complete the Exchange
Your QI coordinates the transaction and ensures IRS compliance. Once closed, you’ve officially completed a tax-deferred exchange.
Important Timelines
| Deadline | Requirement |
|---|---|
| Day 0 | Close on the sale of original property |
| Day 45 | Identify replacement property(s) in writing |
| Day 180 | Close on replacement property |
These are calendar days, not business days. No extensions.
Rules to Keep in Mind
- You must use a Qualified Intermediary (QI)
You can’t receive the sale proceeds directly. - The replacement property must be of equal or greater value
To fully defer taxes, reinvest all proceeds and maintain or increase your mortgage balance. - Only investment/business-use properties qualify
No personal residences or flips. - Both properties must be in the U.S.
Common 1031 Exchange Scenarios
- Upgrade: Selling a single-family rental to buy a 4-unit multifamily building.
- Consolidate: Combining multiple smaller properties into one larger commercial investment.
- Relocate: Moving your investments to a stronger real estate market.
- Retirement Planning: Exchanging into low-maintenance, income-generating assets like triple-net lease properties.
How Find1031 Can Help
1031 exchanges are powerful—but they can be complex. That’s where we come in. We connect you with the right experts, walk you through the entire exchange process, and ensure everything is IRS-compliant and deadline-proof.
- Access to vetted Qualified Intermediaries
- Personalized exchange strategies
- Real estate tax guidance
- Ongoing investor support
Contact us today for a free consultation with a 1031 expert.
Let’s turn your tax burden into a smarter investment.
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