IRC §1031
1031 Exchange
A 1031 exchange defers — but does not eliminate — capital gains taxes when you sell investment property and reinvest in like-kind property within strict timelines (45 days to identify, 180 days to close). The gain follows the new property and becomes taxable when it’s eventually sold without another exchange.
The strategy’s value is time: you invest dollars that would have gone to the IRS and let them compound. Chains of 1031 exchanges can defer gain indefinitely; a stepped-up basis at death can eliminate it entirely.
Who this may apply to
- Selling investment or business property
- Planning to reinvest in like-kind real estate
- Can meet the 45/180-day timeline requirements
Strategy connections
Works well with
- Cost Segregation Study: Replacement-property depreciation planning should account for exchanged and excess basis.
- Estate & Wealth Transfer Planning: Long-term exchange planning should be coordinated with basis and transfer objectives.
What could block this
- The relinquished or replacement asset is not qualifying real property held for business or investment
- A qualified intermediary was not engaged before the transfer
- Identification or exchange deadlines cannot be met
Important considerations
- Both the sold property and the replacement property must be held for investment or business use — personal residences do not qualify
- Missing either the 45-day or 180-day deadline disqualifies the entire exchange and the full gain becomes taxable
- Related-party exchanges (selling to a family member) have additional holding period requirements
Professional support
Qualified Intermediary + Tax CPA
Will facilitate the exchange, ensure timeline compliance, and structure the transaction for maximum tax deferral.
Timing
Engage the QI BEFORE the sale closes — it cannot be set up retroactively. The 45-day identification and 180-day closing deadlines are strict and cannot be extended except in limited disaster circumstances.
Official sources
Reviewed 2026-07-24