How a 1031 exchange works
Under Section 1031 of the Internal Revenue Code, an investor can sell an investment or business property and defer federal capital gains and depreciation-recapture taxes by reinvesting the proceeds into another qualifying property. A qualified intermediary must hold the funds between the sale and the purchase — you can never touch the money yourself.
The deadlines that matter
- 45 days: from the closing of your sale, you must identify potential replacement properties in writing.
- 180 days: you must close on the replacement property within 180 days of the sale.
- Equal or greater value: to fully defer tax, the replacement should be of equal or greater value and all equity must be reinvested.
Because the identification window is short, most exchangers start evaluating replacement properties before their relinquished property even closes.
What makes a good 1031 replacement property
- Income already in place. A leased asset generates rent from day one, so there is no lease-up risk during your exchange window.
- Predictable cash flow. Longer remaining lease terms and creditworthy tenants make financing and underwriting straightforward.
- Simple ownership. Fee-simple condos and single-tenant assets are easy to close quickly inside the 180-day window.
- Tax efficiency. Pairing the exchange with a cost segregation study can accelerate depreciation on the new asset. Read our cost segregation guide.
A current example: Suite 200 at 599 Tamiami Trail N
This fully built-out executive office condo in the heart of Old Naples is offered at $1,500,000 with a 4.67% cap rate and $70,000 in net operating income. The tenant is in place on a lease running through 2029, so an exchanger steps directly into stabilized income with no vacancy risk during the exchange period.
Fee-simple title, a prestigious downtown address, and a turn-key buildout make it a clean fit for exchangers who need certainty of close inside the IRS timeline.