How it works
A 1031 exchange in five minutes.
The idea in one paragraph
Sell investment real estate, buy more, and defer the tax. Section 1031 has been in the tax code since 1921, and you can use it again and again.
The rules
Four rules that decide whether your exchange works.
“Like-kind” is broad: an apartment building for raw land, a warehouse for a portfolio of rentals, an office for a DST interest. What matters is following these rules exactly.
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You can’t touch the money.
From the moment your property sells until you buy the replacement, the proceeds must be held by a qualified intermediary. If they reach your bank account, even briefly, the exchange fails.
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The clock is strict.
You have 45 days from the sale to identify replacement property in writing, and 180 days to close on it. Weekends and holidays count.
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To defer all the tax, trade equal or up.
Buy property worth at least what you sold, reinvest all your net proceeds, and replace any mortgage you paid off with new debt or added cash. Anything you keep is taxable “boot.”
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Report it correctly.
After closing, your qualified intermediary sends a final accounting, and your CPA reports the exchange on Form 8824 with your tax return.
What's at stake
On a $1.5 million sale, the difference can be about $250,000.
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The sale. You sell a rental you bought for $700,000 a decade ago for $1.5 million. After $200,000 of depreciation, your taxable gain is about $1 million.
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Without an exchange. Federal tax could reach about $248,000: $50,000 of depreciation recapture, $160,000 of capital gains tax and $38,000 of net investment income tax, before any state tax.
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With an exchange. Reinvest in property of equal or greater value and that money stays invested and earning for you. Illustrative only, using top federal rates; your CPA can tell you what applies to you.
Calling the QI after closing
If the proceeds reach you, the exchange is over. We’re in place before your sale closes.
Vague identification
“A duplex on Main Street” doesn’t count. We help you identify properties in writing, correctly.
Trading down
Buy less than you sold, or take on less debt, and the difference is taxable. We flag it before you sign.
Forgetting the tax-return date
If your return is due before day 180, that date can cut your exchange short unless you extend. We watch it for you.
Clarity and security are the foundation of every successful exchange. Our role is to protect your proceeds and keep your deferral on track, no matter how complex the transaction.
Joel Arberman
Chief Executive Officer
Common questions
The details, answered.
What happens when, step by step?
Before closing: sign the exchange agreement with your qualified intermediary. Day 0: your sale closes and the proceeds go straight to your exchange account. By day 45: send a signed list of replacement properties, with addresses or legal descriptions. By day 180: close on one or more of them. If your tax return is due before day 180, file an extension or that date becomes your deadline. After closing: your QI sends a final accounting, and your CPA reports the exchange on Form 8824.
How many properties can I identify?
Three ways. The 3-property rule: up to three properties of any value, which works for most exchanges (a first choice and two backups). The 200% rule: any number of properties, as long as they total no more than 200% of what you sold. The 95% rule: any number and value, if you actually buy at least 95% of the total you identify. That last one is rare and needs careful planning.
How much tax could an exchange defer? A worked example
Maria sells a rental for $1,500,000. She bought it ten years ago for $700,000 and has taken $200,000 of depreciation, so her taxable gain is about $1,000,000. Without an exchange, her federal tax could reach about $248,000: $50,000 of depreciation recapture at 25%, $160,000 of capital gains at 20% and $38,000 of net investment income tax at 3.8%, before state tax. With an exchange into a $1,600,000 property using all her net proceeds plus a new mortgage, she owes no tax now. Illustrative only; selling costs and individual circumstances change the numbers. Talk to your CPA.
What is a qualified intermediary, and why do I need one?
The IRS doesn't let you receive your sale proceeds during an exchange. A qualified intermediary holds them, prepares the exchange documents and sends the money to your purchase closing. It can't be a close relative, or an attorney, CPA, broker or employee who has acted as your agent in the past two years.
What property qualifies?
Real estate held for investment or for use in a business, exchanged for other such real estate anywhere in the U.S. Your primary home and property held mainly for resale (such as a fix-and-flip) don't qualify.
Can I take some cash out?
Yes, but the cash you receive is taxable. The rest of the gain can still be deferred.
When do I need to contact a qualified intermediary?
Before your sale closes. Once the proceeds reach you, the exchange can't be started. Ideally, call when you accept an offer.
How do your fees work?
A flat fee, disclosed in writing before your exchange begins, with no hidden charges. We'll quote your exact cost on your first call.
Do I have to buy the same type of property?
No. "Like-kind" is broad: land for a rental, a warehouse for an apartment building, one property for several.
What if I can't find a replacement in 45 days?
If you don't identify anything, the exchange ends and the funds are returned to you, generally after day 45, and the gain is taxable. That's why we help you identify backups.
