1031 exchange — defer capital gains on investment property
A 1031 exchange lets you sell investment or business real estate and reinvest the proceeds in like-kind property without paying capital gains tax at the time of sale. The tax is deferred until you eventually sell without exchanging — not eliminated.
These are the questions that matter most when you’re thinking about a 1031 exchange.
What is a 1031 exchange?
A swap of investment real estate that defers the capital gains tax instead of triggering it at sale. The tax follows you forward into the new property until you eventually sell without exchanging.
Without a 1031
Tax at sale
- You sell appreciated investment property
- Capital gains tax is owed in the year of sale
- You reinvest what’s left after tax
With a 1031
Tax deferred
- You exchange into like-kind investment property
- Capital gains tax is deferred to the future sale
- You reinvest the full proceeds, not just the after-tax amount
How do the timing rules work?
Both deadlines run from the day you sell the original property — at the same time, and neither can be extended.
- Day 0 — Close the sale of the property being relinquished. Both clocks start.
- By Day 45 — Identify replacement property in writing.
- By Day 180 — Close on the replacement property.
- A qualified intermediary holds the funds and handles the paperwork from start to finish.
- Missing either deadline generally collapses the exchange — the tax becomes due.
What properties qualify?
Real property held for investment or used in a trade or business qualifies. Personal-use property and your primary residence do not.
| Property type | Qualifies | Does not qualify |
|---|---|---|
| Rental homes and rental condos. | ||
| Commercial buildings and office space. | ||
| Raw land held for investment. | ||
| Most income-producing real estate. | ||
| Your primary residence. | ||
| A second home used personally. | ||
| Property held mainly for resale (inventory). | ||
| Personal property and most non-real-estate assets. |
When does a 1031 exchange actually make sense?
A 1031 fits when you want to keep investing without paying tax now. It doesn’t fit when you simply want cash out or when the timing won’t work.
| Your situation | A 1031 fits | A 1031 doesn’t fit |
|---|---|---|
| You want to sell appreciated investment real estate. | ||
| You want to keep investing rather than cash out. | ||
| You have replacement property in mind or in motion. | ||
| The 45- and 180-day windows are realistic. | ||
| You actually want the cash out. | ||
| Replacement timing is too tight. | ||
| The property is a primary or personal residence. | ||
| The tax position is already favorable without exchanging. |
How Brent helps you
- Walks you through whether a 1031 exchange would actually save tax in your situation
- Maps out the 45-day and 180-day windows against your replacement-property timing
- Confirms whether your specific property qualifies under the rules
- Coordinates with the qualified intermediary so the exchange holds together
Does a 1031 exchange fit your next sale?
Five quick questions about the property you’re selling and what you’d do with the proceeds.
60-second guided check. Bring the result to your consultation.