A 1031 Exchange allows investors to defer capital gains taxes when selling an investment property by reinvesting the proceeds into another “like-kind” property. This exchange must meet specific IRS rules to qualify for tax deferral.

Like-kind” refers to the nature or character of the properties being exchanged, not their quality or value. In real estate, most properties such as residential, commercial, or industrial real estate qualify as like-kind if used for investment or business purposes.

• 45 Days: You must identify potential replacement properties within 45 days of selling the original property.
• 180 Days: The exchange must be completed (i.e., the new property purchased) within 180 days of selling the original property.

No, a 1031 Exchange only applies to investment or business-use properties. Personal-use property, such as a primary residence, does not qualify.

A Qualified Intermediary (QI) is a neutral third party that facilitates the 1031 Exchange by holding the proceeds from the sale and ensuring compliance with IRS rules. The investor cannot have direct access to the funds at any point during the exchange.

Missing either deadline will likely disqualify the exchange, making you responsible for paying capital gains taxes on the sale of the original property.

• Forward Exchange: Sell the old property and then purchase the new one.
• Reverse Exchange: Purchase the replacement property before selling the old one.
• Improvement Exchange: Use exchange funds to improve the replacement property.

Yes, you can exchange multiple properties as long as the total value of the replacement properties meets or exceeds the value of the relinquished property.

If a 1031 Exchange isn’t a fit for you, consider:

• Opportunity Zone Investments for tax incentives.
• Delaware Statutory Trusts (DSTs), allowing fractional ownership of properties.
• Installment Sales to spread out taxable gains over time.

Generally, property flips do not qualify for a 1031 Exchange since they are considered inventory rather than long-term investments or business-use properties.

If the relinquished property has a mortgage, the replacement property should carry equal or greater debt to maintain full tax deferral. If not, the difference may be subject to capital gains tax (known as “boot”).

Yes, fees may include the Qualified Intermediary’s service fees, legal fees, title and escrow charges, and possibly other administrative costs.

No, only U.S.-based properties qualify under the 1031 Exchange rules. Exchanges involving foreign properties do not meet the IRS requirements.

If you sell the replacement property, you can perform another 1031 Exchange to defer taxes again. This is known as chaining or rolling exchanges and can be done indefinitely to avoid capital gains taxes.

When an investor passes away, their heirs inherit the property at a stepped-up basis, meaning capital gains are effectively eliminated. This makes the 1031 Exchange a powerful tool for estate planning.