Primavera Realty · Resource Guide

The 1031 Exchange, Explained (Plus Reverse 1031)

How investors defer capital-gains tax by rolling proceeds from one investment property into another — the rules, the deadlines, and how a reverse exchange differs.

What a 1031 exchange is

Named for Section 1031 of the tax code, a “like-kind exchange” lets an owner of investment or business real estate sell one property and reinvest the proceeds into another without paying capital-gains tax at the time of sale — the tax is deferred into the new property. Done repeatedly, it’s a powerful way to grow a real estate portfolio.

Note: this is for investment and business property, not your personal residence. (A primary home usually relies on a different tax break, the capital-gains exclusion, instead.)

The rules that matter most

• Like-kind, broadly. Almost any real property held for investment qualifies as like-kind to almost any other — a rental for raw land, a duplex for a retail building, and so on.
• Use a Qualified Intermediary. You can’t touch the sale proceeds. A Qualified Intermediary (QI) must hold the funds between the sale and the purchase — if the money hits your account, the exchange is disqualified.
• The 45-day rule. You have 45 days from the sale to formally identify your replacement property (or properties), in writing.
• The 180-day rule. You must close on the replacement within 180 days of the sale — or by your tax-return due date for that year, whichever comes first. The clocks run at the same time and don’t pause for weekends or holidays.
• Equal or greater value. To defer all the tax, you generally reinvest all the proceeds and buy property of equal or greater value.

Forward vs. reverse exchange

In a standard (forward) exchange, you sell first and then buy the replacement within the 45/180-day windows.

In a reverse exchange, you do it the other way around — you buy the replacement property before selling the old one. Because tax rules don’t let you hold both at once during an exchange, a special entity called an Exchange Accommodation Titleholder (EAT) temporarily holds title to one of the properties. The same 45- and 180-day deadlines apply, measured from when the EAT takes title. Reverse exchanges are more complex and costly, but invaluable when you find the perfect replacement before your current property sells.

Please note: This is general educational information, not tax or legal advice. 1031 exchanges have strict requirements and real consequences if mishandled — always work with a qualified intermediary, CPA, and/or tax attorney for your specific situation.

Thinking about an exchange?

Timing is everything with a 1031. Loop us in early and we’ll help you line up the sale, the replacement property, and the right team.

Talk to Bea & Vera