A 1031 exchange lets real estate investors defer capital gains taxes indefinitely. Here's how to use this powerful strategy correctly.

1031 Like-Kind Exchange Guide

What Is a 1031 Exchange?

Section 1031 allows you to defer capital gains taxes when selling investment or business property by reinvesting the proceeds into a similar property.

Key Rules

Qualifying Property

Investment or business real estate
Personal-use property does NOT qualify
Vacant land can qualify
Foreign property does NOT qualify

Timeline Requirements

45 days: Identify replacement properties in writing after the sale
180 days: Close on the replacement property

Like-Kind Requirement

All real property is generally like-kind to other real property:

Apartment building for office building: Yes
Land for residential rental: Yes
U.S. property for U.S. property: Yes

Boot

Any non-like-kind property received (cash, mortgage relief, personal property) is "boot" and is taxable.

Qualified Intermediary (QI)

You cannot touch the proceeds. A QI must hold the funds between transactions.

Identification Rules

You may identify:

Up to 3 properties (regardless of value), OR
Any number of properties totaling up to 200% of the relinquished property's value

Death Steps Up the Basis

If you never sell (keep exchanging), your heirs receive a stepped-up basis at your death, eliminating all deferred gains.

Selling investment property? A 1031 exchange could defer your entire capital gains bill.

Everything You Need to Know About 1031 Exchanges