Investing in real estate
1031 Exchanges
Selling an investment property and want to defer the capital gains tax? Here is how a 1031 exchange works, in plain language.
What is a 1031 exchange?
A 1031 exchange, named after Section 1031 of the Internal Revenue Code, lets an investor defer capital gains tax when selling an investment or business property by reinvesting the proceeds in “like-kind” real estate.
It defers the tax rather than erasing it, but for many investors that means more money stays invested in the next property instead of going to the tax bill.
The key rules
- Investment or business use. The property you sell and the property you buy both need to be held for investment or business use. A primary residence does not qualify.
- 45 days to identify. You must identify your replacement property within 45 days of selling the first property.
- 180 days to close. The purchase of the replacement property must close within 180 days of the sale.
- A qualified intermediary holds the proceeds. The sale proceeds are held by a qualified intermediary, so the money never passes through your hands.
The timelines are strict, so it helps to line up the real estate side early. I coordinate the real estate side, from pricing and selling your current property to finding and buying the next one, and I work alongside your intermediary and tax advisor.
Please note: I am a real estate agent, not a tax or legal professional, and this page is not tax or legal advice. Talk with your qualified intermediary, CPA or tax attorney about your situation.
Tell me where you are in the process
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