If you’ve owned a rental property for a while and are thinking about selling, there's one big question that might be on your mind:
How do I avoid paying a massive tax bill?

Enter the 1031 Exchange.

The Basics

A 1031 Exchange, named after Section 1031 of the IRS tax code, lets you defer paying capital gains taxes when you sell an investment property—as long as you reinvest the proceeds into another like-kind investment property.

Let’s say you bought a small rental home 20 years ago. It’s appreciated in value and now you want to upgrade to a larger property, maybe a duplex or something in a hotter location. Instead of paying tens or even hundreds of thousands in taxes on the sale, you roll that equity into your next purchase.

How It Works

• You sell your current investment property.

• You identify a new property (or properties) to purchase within 45 days.

• You close on the new property within 180 days.

• You defer the capital gains tax by reinvesting all proceeds into the new property.

You can keep doing this over and over, building more wealth by moving up to bigger or better properties, all while deferring the taxes each time.

A Few Key Rules

• It must be "like-kind."
  That doesn’t mean identical—but both properties must be held for investment or business purposes. (You can’t exchange a rental for a primary residence.)

• You must follow strict timelines.
  The IRS doesn’t offer much wiggle room here. Miss a deadline, and you lose the tax break.

• Use a qualified intermediary.
  You can't touch the money between selling and buying. A third party holds the funds during the exchange process.

Talk to a Pro

There’s a lot of fine print in a 1031 Exchange—like how depreciation recapture works, what qualifies as “like-kind,” and how multiple property exchanges are handled.

I’m not a CPA or tax advisor, so before you dive into a 1031, it’s smart to talk to a qualified tax professional.

But from a real estate standpoint, the 1031 is one of the most powerful tools out there for building long-term wealth through real estate investing.

Final Thoughts

If you’re thinking about selling an investment property and want to keep growing your portfolio without taking a tax hit, a 1031 Exchange might be the right move.

Have questions? Want to explore your options?
Message us at Ask Brendan. We’ll walk you through what’s possible and connect you with the right experts.