Resources & FAQ

Section 1031 of the Internal Revenue Code can allow an owner who sells qualifying real property held for business or investment use to acquire qualifying like-kind replacement real property and defer recognition of qualifying gain. It's a structured transaction with strict rules, deadlines and a qualified intermediary — not something you decide on at the closing table.

No. It's tax-deferred, not tax-free. Qualifying gain that isn't recognized at the time of the exchange generally carries forward through a reduced basis in the replacement property. Your CPA determines what is deferred and what, if anything, is recognized.

Real property held for productive use in a trade or business or for investment may qualify. That can include rental houses, condos, multifamily buildings, commercial buildings, certain leased property and investment land. Whether your specific property qualifies is a determination for your CPA and qualified intermediary.

Like-kind for real estate is broader than most owners expect, and a residential rental exchanged for commercial investment property is a common structure. Both sides still have to satisfy the applicable business or investment requirements.

U.S. real property is generally like-kind to other U.S. real property, so an exchange out of California into another state may be possible. California also has claw-back reporting requirements for deferred California-source gain, so this is a conversation to have with your CPA before you sell.

For real estate, like-kind refers to the nature and character of the property rather than its grade or quality. It does not mean house-for-house. It does mean both the relinquished and replacement property must be real property held for qualifying business or investment purposes.

A primary residence by itself is generally not exchange property, because it isn't held for business or investment use. A former residence that was genuinely converted to investment use is a more complicated fact pattern, and eligibility depends on ownership, use, timing and tax history. See the 121 + 1031 page and talk with your CPA.

It depends heavily on how the property has actually been used and rented. Personal use can undermine the investment-purpose requirement. This is a fact-specific determination your tax professional needs to make.

A qualified intermediary (QI) is an independent party who holds the exchange proceeds and documents the exchange. If you receive the sale proceeds directly, you generally destroy the exchange. Jacob is not a qualified intermediary and does not hold exchange funds.

Before the relinquished property closes — ideally before it's even listed. The exchange documents must be in place prior to the transfer of the relinquished property. Waiting until escrow is closing is the single most common way owners lose the opportunity.

Replacement property must generally be identified in writing within 45 days after the transfer of the relinquished property. The period is not extended for weekends or holidays. Confirm all dates with your qualified intermediary.

The exchange period is generally 180 days after transfer of the relinquished property, but it can end earlier — on the due date of your tax return for that year, including extensions, if that date comes first. Filing an extension is a common planning step, and your CPA should be involved.

The regulations describe alternatives commonly summarized as the three-property rule, the 200-percent rule and the 95-percent rule. Which one you rely on is a strategy decision to confirm with your qualified intermediary before you submit your identification.

Buying down in value, or reducing debt without replacing it with cash, can result in recognized gain. It's more nuanced than 'buy something more expensive.' The full structure — price, debt, equity and any cash received — has to be reviewed by your CPA and QI.

Boot generally refers to cash or other non-like-kind consideration received in the exchange. Receiving boot can cause part of the gain to be recognized even when the rest of the exchange is properly structured.

Acquiring multiple replacement properties is possible, subject to the identification rules and the exchange timeline. More moving parts means more coordination, so plan the structure early.

Yes, that structure exists, but timelines can become complicated because planning may be tied to the earliest transfer. This is a call-the-QI-early situation.

In a reverse exchange, the replacement property is acquired through an exchange accommodation arrangement before the relinquished property is sold. It's an advanced structure with additional cost and complexity, and it requires professional guidance from the start.

A Delaware Statutory Trust is a structure in which investors hold beneficial interests in a trust that owns real estate. Certain properly structured DST interests may be used in some 1031 exchanges. DST interests are generally securities, involve risk including loss of principal, and offer limited control and liquidity. Nothing on this website is an offer, solicitation or recommendation of any DST. Suitability and offering information must come from appropriately licensed professionals.

A triple-net or NNN property is generally leased to a tenant who is responsible for specified property costs such as taxes, insurance and maintenance under the lease. Day-to-day landlord responsibility may be lower, but risk doesn't disappear: tenant credit, lease terms, location, re-leasing risk, financing and concentration in a single asset all matter.

Not in the simple way it's often described. Basis and depreciation after an exchange are more nuanced than starting over, and the carryover basis typically continues under its own treatment while any additional investment may be handled differently. Your CPA has to calculate this.

Current tax law may provide a basis adjustment for inherited property depending on the circumstances. Estate and tax professionals should evaluate the specific plan. This website does not provide estate-planning advice and makes no representation about what your heirs will owe.

Section 121 relates to the exclusion of certain gain on the sale of a principal residence, subject to ownership, use and other requirements. Section 1031 relates to deferral of gain on qualifying investment or business real property. They address different situations and have different rules.

Under certain circumstances the two sections can be relevant within the same transaction, but eligibility depends on actual ownership, use, timing, depreciation and tax history — including nonqualified-use considerations and depreciation recapture. This is advanced planning for your CPA and qualified intermediary, ideally before you change how the property is used.

Jacob handles the real estate side: analyzing what you currently own, preparing and marketing the relinquished property, identifying and evaluating potential traditional replacement real estate, coordinating with out-of-area or commercial agents when needed, and keeping the timeline aligned with your CPA and qualified intermediary. He does not provide tax, legal or securities advice and does not act as the QI.

Your CPA or tax attorney, working with your qualified intermediary, determines eligibility and reports the transaction. No real estate professional — including Jacob — can make that determination for you.