Lesson · Facts First
The 1031 Exchange
Sell a rental, reinvest the proceeds, and the capital-gains tax bill waits - sometimes for decades.
The facts
- 01You have 45 days from closing to identify the replacement property in writing, and 180 days total to close on it. Miss either deadline and the deferral is gone (IRC Section 1031 and Treas. Reg. 1.1031(k)-1).
- 02Both properties must be held for productive use in a trade or business or for investment - your primary home does not qualify.
- 03A qualified intermediary must hold the proceeds. Touch the cash yourself and the sale is taxable, even if you reinvest.
- 04To fully defer, you must reinvest all equity and replace (or exceed) the debt you paid off - taking cash out at closing ("boot") is taxed in the year of the sale.
- 05Deferral is the point: tax you never pays today keeps compounding inside the next property.
Sources
- IRS: Like-Kind Exchanges - Real Estate Tax Tips (irs.gov)
- Treas. Reg. 1.1031(k)-1 identification and receipt rules
Educational content only — not tax, legal, investment, or VA-benefits advice. Figures verified against the cited sources for 2026; confirm your own situation with a qualified professional before acting.
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