1031 exchange
A federal tax rule letting investors defer capital gains tax by rolling proceeds from one investment property into another. Strict timelines apply: 45 days to identify the new property, 180 days to close.
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Where this comes up in a sale, and what follows
Part 1 of 4
Why a seller cares
Selling an investment property and buying another through a 1031 exchange defers the capital gains tax. The clocks are strict, the intermediary has to be in place first, and it never applies to the home you live in.
Part 2 of 4
A simple example
You sell a rental for $400,000 with a $200,000 gain and buy a $450,000 replacement through an intermediary within the deadlines. The tax is deferred.
| The deadline | What has to happen |
|---|---|
| Before the sale closes | A qualified intermediary is engaged |
| Day 45 | Replacements identified in writing |
| Day 180 | The replacement closes |
A 1031 is a deferral with three deadlines. Miss one and the gain is taxed this year.
Part 3 of 4
What people get wrong
That it is tax-free. It is tax-deferred; the gain follows you into the next property and is taxed when you sell without exchanging.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
In your Room, this word explains itself where it appears.
Your Room defines 1031 exchange in the step you meet it in, beside the document or the date it belongs to. Free to set up, with an agent or on your own.
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