Under Internal Revenue Code Section 1031, an owner who sells real property held for investment or business use can defer federal capital gains tax by reinvesting the proceeds into "like-kind" replacement property. Key IRS rules: you must identify replacement property within 45 days and close within 180 days, use a qualified intermediary to hold the funds, and generally reinvest all proceeds and equal or greater debt. It applies to investment property, not your primary residence.
If you are selling a Central Florida rental or investment property, a 1031 exchange can be a powerful way to keep your equity working instead of sending a large check to the IRS. Here is how it works in plain terms - always coordinate with a tax professional and a qualified intermediary.
1. What a 1031 exchange is
Section 1031 of the Internal Revenue Code lets you defer (not eliminate) capital gains tax when you exchange real property held for productive use in business or for investment for other like-kind real property. "Like-kind" is broad for real estate - most U.S. investment real estate can be exchanged for other U.S. investment real estate.
2. It is for investment property, not your home
A 1031 exchange does not apply to your primary residence - that is covered by the separate Section 121 exclusion. It is specifically for property held for investment or business use, such as a rental home, vacation rental, or commercial property.
3. The two critical deadlines
The IRS sets strict timelines. From the sale of your relinquished property, you have 45 days to identify potential replacement properties in writing, and 180 days total to close on the replacement. These deadlines are firm and generally cannot be extended, so planning before you sell is essential.
4. The qualified intermediary requirement
You cannot touch the sale proceeds. A qualified intermediary (QI) must hold the funds between the sale and the purchase; if you take control of the money, the exchange fails and the gain becomes taxable. Choosing an experienced QI before closing is a key step.
5. Reinvestment rules and "boot"
To fully defer the gain, you generally must reinvest all the net proceeds and acquire property of equal or greater value with equal or greater debt. Any cash or reduced debt you keep - called "boot" - can be taxable. Because the mechanics are precise, a tax professional should confirm your numbers before you list.
Three free ways to start - no obligation
1. Free Home Value Review. A data-backed estimate of what your investment property could realistically sell for in today's Central Florida market.
2. Free Seller Net Sheet. A line-by-line estimate of your closing costs and your likely net proceeds, useful for planning an exchange.
3. Free 15-Minute Selling Strategy Call. A short, no-pressure call to map pricing, timing, and strategy for your specific property.
Raphaela Rolim - Real Estate in Florida
THE TEAM by LPT Realty LLC
Call or text: (689) 222-7912
Frequently asked questions
Can I do a 1031 exchange on my primary residence?
No. Section 1031 is for investment or business property. Your primary residence is addressed by the Section 121 exclusion, which can exclude up to $250k single / $500k married of gain if you qualify.
What are the 45-day and 180-day rules?
Per the IRS, you must identify replacement property in writing within 45 days of selling, and close on it within 180 days. Both deadlines are strict.
Does a 1031 exchange eliminate the tax?
No, it defers it. The gain rolls into the new property; tax may be due when you eventually sell without another exchange. A tax professional can explain your situation.
Informational only and not tax or legal advice. Rules reference the IRS (Internal Revenue Code Section 1031) and can change; a 1031 exchange has strict requirements - consult a qualified tax professional and a qualified intermediary before proceeding. Commissions are negotiable and are not set by law. Submitting a form does not list your home or create an agency relationship; representation begins only upon a signed listing agreement.
