1031 exchange basics: defer the tax, keep the momentum
Selling an appreciated rental and buying the next one? Done as two separate transactions, the tax bill takes a bite out of your next down payment. Done as a 1031 exchange, the gain defers and your full equity keeps working. The rules are strict but entirely manageable — if you plan before you list.
The mechanics, in one paragraph
You sell investment property; a qualified intermediary (QI) holds the proceeds (you never touch them); within 45 days you formally identify replacement property; within 180 days you close. Buy equal or greater value and reinvest all proceeds to defer the full gain — take cash out ("boot") and that portion is taxable.
Where exchanges fail
- Starting the search after closing. 45 days evaporates. Sam begins replacement scouting while your sale is still in escrow.
- Touching the money. Proceeds must go straight to the QI — engage one before closing, not after.
- Financing surprises on the replacement. The replacement purchase still has to close on time; exchange-aware financing (often DSCR) should be lined up in parallel.
- Identification mistakes. The three-property and 200% rules give flexibility, but only if the paperwork is right on day 45.
A two-state advantage
Exchanging between California and Florida is routine — and it's where a broker licensed in both states earns his keep: one advisor coordinating the sale, the identification list, and the replacement purchase on either coast, with financing designed alongside. California's claw-back reporting applies when you exchange out of CA — flag it with your tax professional.
Educational only — a 1031 exchange has real tax consequences. Work with your CPA and a qualified intermediary; NEO Remarketing coordinates with both.
Thinking about repositioning a property? Begin Property Discovery and mention the exchange — Sam will map the timeline backward from your sale date.
1031 FAQs
What is a 1031 exchange?
A 1031 exchange lets an investor sell one investment property and reinvest the proceeds into another like-kind investment property while deferring capital gains taxes. The funds must flow through a qualified intermediary and strict deadlines apply.
What are the 1031 exchange deadlines?
From the day your sale closes, you have 45 days to formally identify replacement property and 180 days to close on it. The clocks run concurrently and are effectively unforgiving, which is why replacement planning should start before you list.
Can I do a 1031 exchange between California and Florida?
Yes — like-kind is broad for real estate, and exchanging between states is common. Note that California applies claw-back reporting when California property is exchanged for out-of-state property, so coordinate with your tax professional on the filing requirements.