When you sell an investment property at a profit, the capital gains tax can take a serious bite — federal, state, and depreciation recapture combined. A properly executed 1031 exchange lets you roll the entire proceeds into a like-kind replacement property and defer that tax indefinitely, keeping your full equity compounding into the next deal.
Section 1031 of the tax code lets you defer capital gains tax when you exchange one investment or business-use property for another of like kind. "Like-kind" is broad for real estate — an apartment building can be exchanged for raw land, a rental condo for a commercial strip, and so on. What matters is that both properties are held for investment or business use.
The deferral isn't a one-time trick. Investors chain exchanges for decades — trading up, consolidating, relocating equity — and if the property is still held at death, heirs generally receive a stepped-up basis, which can eliminate the deferred gain entirely. The catch is the timeline: it's strict, and missing a deadline is fatal to the exchange.
Tax you don't pay today stays invested. Rolling, say, a six-figure gain into the next property means your full equity keeps earning — instead of a chunk going to taxes. Over multiple exchanges, that difference compounds into materially more buying power.
45 days from the sale to identify replacement properties in writing; 180 days to close. The clocks run concurrently and cannot be extended.
You can never take possession of the proceeds. A qualified intermediary holds the funds between sale and purchase, or the exchange is disqualified.
To defer all the gain, buy replacement property of equal or greater value and reinvest all the equity. Any cash or debt relief you keep ("boot") is taxable.
The exchange must be arranged before closing on the sale. If you take the cash first, even briefly, the opportunity is gone. Talk to us early so the qualified intermediary and the paperwork are in place ahead of the sale.
We model the gain, recapture, and state tax you're deferring, confirm the property qualifies, and time the sale so the exchange is viable.
We coordinate with a qualified intermediary before closing so the proceeds are held correctly and never touch your hands.
We keep the identification and closing deadlines front and center, and help you document the written identification properly.
We file Form 8824 with your return and reconcile any boot, adjusted basis, and carried-over depreciation so the deferral stands.
The first consultation is free. Reach out before you list — the exchange has to be set up before you close.