1031 exchange

Section 1031 of the Internal Revenue Code lets real estate investors defer federal capital-gains tax (and depreciation recapture) by exchanging one investment property for another of like kind.

The rules, simplified

• Like-kind: any U.S. real property held for investment qualifies — SFR for multifamily, land for office, etc. Primary residences don't.
• 45-day identification window: identify replacement property within 45 days of sale.
• 180-day closing window: close on the replacement within 180 days.
• Qualified intermediary required. You can't touch the proceeds.
• Equal or greater value in price and debt — otherwise the difference ("boot") is taxed.

Why it matters

Combined federal capital-gains and depreciation recapture can easily hit 25–30% of the gain. Deferring that lets you compound on a larger base. Many investors run 1031s for decades, then step up basis at death — eliminating the deferred tax entirely.

Always loop in a CPA and a qualified intermediary before listing the property; the clock starts at sale.