CRE 101 · deweyluong.realtor

1031 Exchange Explained: Deadlines, Rules and a Worked Example for Georgia Investors

Sell the building. Keep the equity working. Defer the tax. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498

A 1031 exchange lets you sell an investment property and move the full proceeds into the next one without paying capital gains tax at the sale. The tax is deferred, not erased — your old cost basis generally carries into the replacement property, and the bill comes due when you eventually sell without exchanging again. Done right, it is how small landlords in Gwinnett trade up into retail, industrial, and larger multifamily without losing a fifth of their equity to tax at every step.

Done wrong, it fails on a calendar, not on math. The rules below are the ones that decide whether an exchange lives or dies.

The two deadlines that run the whole exchange

• Day 0: the relinquished property closes. The clock starts.
• By day 45: you identify replacement property in a signed written notice to your qualified intermediary. The most common route is the 3-property rule: identify up to three properties, regardless of value.
• By day 180: you close on the replacement property. This deadline can be cut shorter by your tax return due date if you do not file an extension — plan for that with your CPA.

These are calendar days. In the standard case they are not extended for weekends or holidays, and there is no grace period. Miss day 45 with no valid identification, or day 180 with no closing, and the exchange fails.

The qualified intermediary rule: never touch the money

Between the sale and the purchase, the proceeds must be held by a qualified intermediary (QI) — an independent third party who is not you, your agent, your attorney, or a related party. If the sale proceeds land in your own account, or you can control them, the IRS treats the exchange as a sale and the deferral is lost.

The QI must be engaged before the relinquished property closes. This is the mistake I see most: an owner calls about an exchange after the closing check is already in hand. At that point it is too late. The conversation has to happen while the first property is still being marketed.

Like-kind is broader than most owners think

For real estate, “like-kind” does not mean the same type of building. It means real property held for investment or business use exchanged for other real property held for investment or business use. A Duluth retail strip can be exchanged into Norcross industrial land, a Lawrenceville apartment building, or a tenancy-in-common interest — the asset class can change completely.

What does not qualify: a primary residence, property held mainly for resale (a quick flip), and personal property. Vacation property sits in a gray zone with its own tests — get advice before counting on it.

Worked example. The numbers below are made up to teach the mechanics. This is not a real property.

To defer the full tax, the standard target is to buy replacement property worth at least the $1,200,000 sale price, reinvest all $800,000 of equity, and carry at least as much debt ($400,000) on the new property. Buy for less, reinvest less, or take cash out, and the shortfall — called “boot” — is taxable to the extent of the gain. Partial exchanges are allowed; they just defer part of the tax instead of all of it.

The sequence, in order

• Before listing: tell your broker and CPA the sale may be an exchange. Engage the QI and line up your lender.
• During the sale: the contract and closing are structured as an exchange through the QI; the proceeds go to the QI, never to you.
• Days 1–45: shop with the deadline in front of you. Identify with room to spare — a backup property on the list is cheap insurance.
• Days 45–180: close on the replacement. Underwrite it like any other deal — cap rate and NOI price it, DSCR tests the loan — and do not let the deadline talk you into a bad building. A failed exchange costs tax; a bad building costs more.

Cho nhà đầu tư người Việt

Trao đổi 1031 cho phép nhà đầu tư bán bất động sản đầu tư hoặc kinh doanh và hoãn thuế lãi vốn bằng cách tái đầu tư toàn bộ tiền bán vào bất động sản thay thế cùng loại (like-kind). Ba điểm quan trọng nhất: tiền bán phải do một đơn vị trung gian đủ điều kiện (qualified intermediary) giữ — nhà đầu tư không được tự giữ tiền; có 45 ngày kể từ ngày bán để xác định bất động sản thay thế; và có 180 ngày để hoàn tất việc mua. Việc trao đổi phải được chuẩn bị trước khi bán, không phải sau khi đã nhận tiền. Đây là thông tin giáo dục chung, không phải tư vấn thuế — hãy trao đổi với CPA hoặc luật sư thuế của bạn trước khi quyết định.

Trao đổi 1031 là gì?

Trao đổi 1031 cho phép nhà đầu tư bán bất động sản đầu tư hoặc kinh doanh và hoãn thuế lãi vốn bằng cách tái đầu tư toàn bộ tiền bán vào bất động sản thay thế cùng loại (like-kind). Tiền bán phải do một đơn vị trung gian đủ điều kiện (qualified intermediary) giữ, và nhà đầu tư có 45 ngày để xác định bất động sản thay thế và 180 ngày để hoàn tất việc mua.

Frequently asked questions

What is a 1031 exchange?

A 1031 exchange, named for Section 1031 of the Internal Revenue Code, lets an investor sell real property held for investment or business use and defer the capital gains tax by reinvesting the proceeds into like-kind replacement property. The tax is deferred, not forgiven: the old basis generally carries into the new property.

What are the 1031 exchange deadlines?

Two deadlines run from the day the relinquished property closes. You have 45 calendar days to identify replacement property in writing, and 180 calendar days to close on the replacement property. The deadlines are not extended for weekends or holidays in the standard case, and missing either one ends the exchange.

Why do I need a qualified intermediary for a 1031 exchange?

The sale proceeds must be held by a qualified intermediary (QI) between the sale and the replacement purchase. If you take possession or control of the cash yourself, the exchange fails. The QI must be engaged before the first closing, not after.

What counts as like-kind property in a 1031 exchange?

For real estate, like-kind is broad: any real property held for investment or business use can generally be exchanged for any other real property held for investment or business use. An apartment building can be exchanged for retail, land, or an industrial property. Property held for personal use, such as a primary residence, does not qualify.

This page is general education, not tax or legal advice. Exchange rules, deadlines, and state treatment vary by situation — confirm your plan with your CPA, tax attorney, and qualified intermediary before you sell. Túy “Dewey” Luong, CCIM is a real estate broker, not a tax advisor or qualified intermediary.