A 1031 exchange lets an investor defer capital-gains tax by selling one investment property and buying "like-kind" replacement property. The tax rules belong to your CPA and qualified intermediary (QI). The financing is where exchanges most often get into trouble.
Two clocks
- 45 days from the sale of the relinquished property to identify replacement properties in writing.
- 180 days from that sale (or your tax filing deadline, if earlier) to close on the replacement.
Get financing ready before you sell
- Pre-underwrite before listing the relinquished property. Know your maximum loan amount under each option.
- Pick the qualifying method. Conventional investment loans use your personal income; DSCR loans qualify on the property's rent divided by its payment.
- Order the appraisal early once a replacement is under contract — appraisal delays are the most common cause of missed deadlines.
- Coordinate with your QI so exchange funds arrive at the title company on time.
Debt replacement
To fully defer tax, investors generally need to acquire replacement property of equal or greater value and replace the debt paid off on the relinquished property (or add cash). Ask your CPA how this applies to you.
We are not tax or legal advisors. This article is general education.