What is a 1031 exchange?
Section 1031 of the U.S. tax code allows you to defer capital gains tax when you sell one investment property and reinvest the proceeds into another. The IRS treats it as a continuation of the same investment rather than a taxable sale and a new purchase. Done correctly, every dollar of equity rolls forward — none gets siphoned off to the IRS.
It is not a loophole. It is a deliberate provision in the tax code designed to encourage long-term real estate reinvestment. Used over decades, a 1031 exchange (or series of them) can compound tax-deferred for a lifetime, and ultimately receive a stepped-up basis at death.
It applies only to investment or business-use real estate — your primary home is out. Vacation homes, rentals, raw land, commercial buildings, and DST interests are all eligible.
The two deadlines you cannot miss
From the day your old property closes, you have 45 days to formally identify replacement candidates in writing, and a total of 180 days to close on one or more of them. Both clocks start on the same day and run concurrently. Miss either and the entire exchange collapses into a fully taxable sale.
Use our Deadline Tracker to see exactly where you are inside both windows.
What qualifies as a like-kind exchange?
"Like-kind" is much broader than most investors realize. Any U.S. investment real estate can be exchanged for any other U.S. investment real estate. A duplex in Nashville for raw land in Florida, a self-storage facility for an Airbnb portfolio, or a single rental for a fractional DST position — all qualify.
What is "boot" and why does it matter?
"Boot" is any value you receive in the exchange that isn't like-kind real estate — most often cash left over, or a reduction in debt. Boot is taxable in the year of the exchange. To fully defer, your replacement property must equal or exceed both the price and the debt of what you sold.
How a qualified intermediary (QI) works
You can never touch the proceeds. A Qualified Intermediary holds the funds in a separate account between the sale and the purchase. They draft the exchange documents, accept the wire, and disburse to the closing of your replacement property. Selecting a reputable QI with strong bonding is one of the most important decisions in the entire process.
Enter the Delaware Statutory Trust
DSTs let you exchange directly into a fractional interest in institutional-grade real estate — often closing in 2–3 business days. When your 45-day clock is tight or your direct-deal pipeline falls through, DSTs are the safety valve that keeps your exchange intact.
See our DST Investing Guide for a full walkthrough.
Common mistakes to avoid
- Touching the proceeds, even for a day — instantly disqualifies the exchange.
- Identifying replacement properties verbally or after day 45.
- Buying down — taking on less debt than you had on the relinquished property.
- Forgetting that "exchange expenses" rules limit what your QI can pay from proceeds.
- Choosing a QI based on price alone instead of bonding and track record.
Is a 1031 exchange right for you?
It typically makes sense when (a) you have meaningful unrealized gains, (b) you intend to stay invested in real estate, and (c) you can replace both the price and the debt. If you want to cash out and exit real estate entirely, a 1031 is not the right tool — but the conversation is still worth having with our team.
Questions? Our team is here.