The Complete Guide
The Complete 1031 Exchange Guide
Everything an investor needs to understand a 1031 exchange: what qualifies, the two deadlines that govern the process, how the proceeds have to be handled, and the options for reinvesting them. Educational only, written in plain English.
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What is a 1031 exchange?
Named for Section 1031 of the Internal Revenue Code, a 1031 exchange lets an investor sell real estate held for business or investment and defer the capital-gains tax, provided the proceeds are reinvested into “like-kind” replacement property within strict deadlines. Done correctly, the tax that would normally be due on the sale is deferred, allowing more capital to stay invested.
The two deadlines that govern every exchange
- 45 days from the sale of your relinquished property to formally identify potential replacement properties, in writing.
- 180 days from the sale to close on the replacement property and complete the exchange.
A Qualified Intermediary must hold the sale proceeds throughout. If you take possession of the money, the exchange fails. See the full rules & timelines →
Before you exchange
Is a 1031 exchange the right move?
A 1031 exchange is a powerful tool, but it is not the only option, and not always the best one. It commits you to buying replacement property on a strict timeline and keeps your capital in real estate. Here are the main paths investors weigh when selling an appreciated investment property.
Sell and pay the tax
Sometimes the cleanest choice is to sell, pay the capital-gains tax, and free your capital for any purpose. Simple, liquid, and done.
1031 into your own property
Defer the tax by reinvesting in like-kind real estate you choose and control: another rental, a commercial building, or land.
1031 into a DST
Defer the tax with a passive, fractional interest in institutional real estate. One replacement option, explained in detail below.
Installment sale
Spread the gain, and the tax, over several years by carrying back seller financing instead of taking all the proceeds at once.
Opportunity Zone fund
Reinvest the gain in a Qualified Opportunity Fund to defer and potentially reduce it, under different rules and timelines than a 1031.
Hold, refinance, or pass on
Keep the property and pull out equity by refinancing, or hold it for life so heirs may receive a stepped-up basis.
The replacement property
Where DSTs fit
Finding, financing, and closing on a replacement property inside 180 days is hard. A Delaware Statutory Trust (DST) is one of the options above: a structure that lets investors hold fractional, passive interests in institutional-grade real estate, treated as like-kind replacement property.
A DST suits some investors and is wrong for others. How they work, what they actually cost, the risks, the 721 / UPREIT exit and who is eligible to buy one are all covered on the DST page.
Also: risks & fees · 721 / UPREIT exits · who can invest
Read the DST guide →Common questions
DST & 1031 FAQ
Is a DST really “like-kind” for a 1031?
Yes. The IRS has treated a beneficial interest in a properly structured DST as like-kind real property eligible for 1031 exchange treatment (Revenue Ruling 2004-86). Confirm specifics with your own tax advisor.
Can I lose money in a DST?
Yes. DSTs carry real-estate and market risk, are illiquid, and are not guaranteed. Past performance is not indicative of future results.
What if my property is held in an LLC or a trust?
It often still works, but the details matter. A 1031 follows the “same taxpayer” rule: the tax owner that sells must be the owner that buys. A single-member LLC or a revocable living trust is usually “disregarded” for tax purposes, so the exchange can proceed in that owner’s name. Multi-member LLCs and partnerships raise special issues. Confirm your exact structure with your CPA before you sell.
Can I do a 1031 if I own the property with partners?
Sometimes, but it is more complex, because each owner may want a different outcome. Partnerships sometimes restructure ahead of a sale so individual owners can exchange or cash out separately. Plan this well before closing.
What happens to my mortgage or debt?
To fully defer the tax, you generally need to replace both your equity and your debt (or add cash to make up the difference). Taking on less debt on the replacement property can create taxable “boot.”
Can I do a partial 1031 exchange?
Yes. You can exchange part of the proceeds and cash out the rest; the portion you keep (“boot”) is taxable. Our calculators can help you weigh the trade-off.
Do you sell DSTs?
No. We are an educational resource. We do not sell securities or recommend specific offerings; we connect you with licensed professionals.
Ready to talk it through?
Bring your questions. We’ll explain your options and connect you with a licensed professional. No cost, no pressure.
Educational purposes only. 1031InvestorGuide is not an offer to sell or a solicitation to buy any security, and is not tax, legal, or investment advice. Delaware Statutory Trusts are available only to accredited investors through licensed broker-dealers. Past performance is not indicative of future results. Consult your own advisors.
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