The 1031 Exchange Guide for Rental Property Owners
Thinking about selling a rental property? Understand your options for deferring capital gains, and how some owners move from active landlord to passive investor.
For landlords ready to sell. About a 6 minute read.
What a 1031 exchange does
Section 1031 of the Internal Revenue Code lets an owner of investment real estate defer capital gains taxes by selling one property and reinvesting the proceeds into another like kind property. Done correctly, the tax is deferred, not forgiven, and your full equity keeps working for you.
For many landlords, the exchange is the moment they ask a bigger question: do I want to keep managing property at all?
The rules that matter most
- Both properties must be held for investment or business use, not as a personal residence.
- You have 45 days from the sale to identify replacement property in writing.
- You have 180 days from the sale to close on the replacement property.
- A qualified intermediary must hold the sale proceeds. If you touch the money, the exchange can fail.
- To defer all of the tax, you generally need to reinvest all of the proceeds and replace the debt.
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