Did You Know?
1031 exchanges provide investors with one of the best tax strategies for preserving the value of an investment portfolio. By using an exchange the investor is able to defer capital gain taxes that would otherwise be incurred on the sale of investment property.

The investor can then use the entire amount of the equity to purchase substantially more replacement property. To qualify as an exchange the relinquished and replacement properties must be qualified “like-kind” properties and the transaction must be structured as an exchange. Using a qualified intermediary, the investor with the necessary reciprocal transfer of properties to create the exchange and the “safe harbor” protection against actual and constructive receipt of the exchange funds required by 1031.


  • The exchanger signs a contract to sell a relinquished property to the buyer.

  • The qualified intermediary and the exchanger enter into the exchange agreement.

  • At the closing of the relinquished property the exchanged funds are wired to the qualified intermediary and the qualified intermediary instructs the settlement officer to transfer the deed directly from the exchanger to the buyer.

  • The exchanger has a maximum of 180 days in the exchange period (or until tax filing deadline, including extensions, for the year of the sale of the relinshiqed property), to acquire all replacement property.

  • The exchanger must identify possible replacement properties in writing to the qualified intermediary within the 45-day identification period.

  • The exchanger signs a contract to purchase the replacement property with the seller and the exchanger assigns the exchangers rights in the purchase contract to the qualified intermediary.

  • At the closing of the replacement property the qualified intermediary wires the exchange funds to complete the exchange and the qualified intermediary instructs the settlement officer to transfer the deed directly from the seller to the exchanger.


As a general rule of thumb, to avoid paying any capital gains taxes in exchange, the investor should always attempt to:

1. Purchase equal or greater in value.
2. Reinvest all of the equity in replacement property.
3. Obtain equal or greater debt on replacement property.
Exception: A reduction in debt can be offset with additional cash from exchanger, but increasing debt cannot offset a reduction in exchange equity.

Calculating the Capital Gains Tax

The gain, not the profit or equity, from the sale of investment property is subject to the combination of capital gains taxes and the tax on recapture of depreciation. It is possible for an investor to have little or no equity or profit upon sale and still owe capital gains taxes. Investors should consult with their tax or legal advisors prior to entering into an exchange.

Tax Benefit of Exchanges

Whether the investor’s property is owned free and clear or encumbered, the benefits of a tax deferred exchange are significant. The tax dollars saved by an exchange can be utilized to purchase additional investment property.

A “Like-Kind” Property

To qualify as a “like-kind” property for a 1031 exchange the investor’s relinquished property and replacement properties must be property that has been and will be held for productive use in the investor’s trade or business or for investment.

  • Office/Medical

  • Industrial

  • DST(Fractional Ownership)

  • AG/Vacant Land

  • Retail

  • Multi-Family

  • Hospitality

  • Mixed-Use

  • Duplex-Fourplex

  • Residential Rentals