Like-kind real property
Investment or business real property exchanged for other investment or business real property.
Tax-smart investing
Sell, reinvest and defer.
A plain-English guide to the 1031 exchange: how investors reinvest sale proceeds into new property while deferring capital gains taxes.
What a 1031 exchange does
Section 1031 of the U.S. Internal Revenue Code allows an investor to sell business or investment real property and reinvest the proceeds into like-kind real property while deferring capital gains taxes, if the rules are followed carefully.
It is one of the most powerful tools long-term real estate investors have, and also one of the easiest to get wrong.
The core rules
45-day identification
Replacement properties must be identified in writing within 45 days of the sale.
180-day closing
The replacement purchase must close within 180 days of the sale (or the tax return due date, if earlier).
Qualified intermediary
Sale proceeds are held by an intermediary; the investor cannot take receipt of the funds.
Reinvest fully
To defer all gain, investors generally reinvest all proceeds and replace debt.
Same taxpayer
The entity that sells is generally the entity that must buy.
Line up the intermediary before you sell
The qualified intermediary must be in place before closing on the sale; it cannot be added afterward.
Start the search early
The 45-day window goes quickly. Many investors begin looking for replacement property before they even list their current one.
Coordinate your advisors
Your tax advisor, attorney, intermediary and lender should all understand the plan and the deadlines from the start.
Frequently asked questions
What is a 1031 exchange?
A transaction under Section 1031 of the Internal Revenue Code that lets investors defer capital gains taxes by reinvesting proceeds from the sale of investment real property into like-kind real property.
What are the 1031 exchange deadlines?
Replacement property must be identified within 45 days of the sale and acquired within 180 days of the sale, or by the due date of the tax return if that is earlier.
Can I use a 1031 exchange on my primary residence?
No. A 1031 exchange applies to property held for investment or business use, not a personal residence.
What is a qualified intermediary?
An independent party who holds the sale proceeds and facilitates the exchange so the investor never takes receipt of the funds.
Looking for a replacement property?
If you are in an exchange and have a property to sell or buy, let's talk.
Brooklyn, New York