1031 Exchanges: Real Estate Tax Deferral
A 1031 exchange allows you to sell an investment property and defer all capital gains taxes by reinvesting the proceeds into a like-kind replacement property. The tax isn't eliminated - it's deferred. But you can exchange repeatedly throughout your investing career.
How It Works
When you sell an appreciated investment property, you'd normally owe capital gains tax on the profit. A 1031 exchange rolls the gain into a new property instead of recognizing it. The tax basis carries forward.
The Rules
The Stepped-Up Basis at Death
What would you do?
Jordan owns a rental property purchased for $300,000, now worth $500,000. He wants to sell and buy a larger rental property.
Your Move
If you own investment real estate with significant appreciation, research Qualified Intermediaries in your area before you list the property. The QI must be in place before closing. Understanding the 45-day and 180-day deadlines is essential - they are absolute.
Sources
- Internal Revenue Service, Like-Kind Exchanges (Real Estate Tax Tips)
Section 1031 like-kind exchanges of real property
Educational information only. Not financial, tax, or legal advice or a recommendation. Figures are drawn from the primary sources cited above; verify current amounts with the source before acting.
Educational content only. Not financial, tax, or legal advice. Consult a qualified professional before making decisions based on your specific circumstances.
Last reviewed: April 2026