1031 Exchanges, Explained
The short version: a 1031 exchange lets an investor defer capital gains tax by rolling proceeds from a sold investment property into a new one, as long as strict rules and deadlines are followed.
Why investors use one
Selling an investment property normally triggers capital gains tax on the appreciation. A properly structured 1031 exchange (named for Section 1031 of the tax code) lets you defer that tax by reinvesting the proceeds into a “like-kind” replacement property, which for real estate is interpreted broadly to include most investment or business-use real property.
The two deadlines that matter most
Once you close on the sale of the relinquished property, you have 45 days to formally identify potential replacement properties, and 180 days total from the sale to close on the replacement. Both deadlines are strict, and missing either one can disqualify the exchange, so timing your search and your offer strategy against the calendar matters as much as finding the right property.
A qualified intermediary is required
You cannot touch the sale proceeds yourself between closings. A qualified intermediary holds the funds and handles the exchange paperwork. That intermediary needs to be lined up before your relinquished property closes, not after.
This is general information, not tax or legal advice. 1031 exchange rules are strict and detail-dependent; work with a qualified intermediary and a CPA before relying on this timeline.
Considering a 1031 Exchange?
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