When a 1031 Tax-Deferred Exchange Makes Sense

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Real Estate

1031 Exchanges can give you flexibility in how you preserve, manage, and improve your family's investment properties by deferring costly capital gains tax when you sell one property to purchase another.

Tax-deferred exchanges originated in 1921 as simple two-party barter exchanges.  In 1991, the Internal Revenue Service (“IRS”) formally defined the role of the “Qualified Intermediary.” The Qualified Intermediary is also known as an Accommodator or Facilitator.  Today an exchange typically involves a Qualified Intermediary receiving the sale proceeds of the property the investor wishes to sell (“relinquished property”). The investor then instructs the Qualified Intermediary to purchase the new property (“replacement property”) and convey title to the replacement property to the investor. Commercial, agricultural, industrial, residential or vacant land may all be exchanged. By properly executing an exchange, you, the investor is able to defer the realization of capital gains on the sale of the relinquished property.  This deferral allows funds that would have other- wise gone to pay capital gains tax to be allocated toward a greater investment. 

The purpose of 1031 Exchanges is to allow investor-owners to move laterally or upward as they manage their investment property portfolios, deferring capital gains taxes on the sale and recapture of depreciation so they may put that money instead toward greater investments.

So when would a 1031 Exchange make sense for you? 

• You’d like to upgrade from a single family to a duplex, or a duplex to a triplex. Use a 1031 Exchange when you sell the old property and put the entire proceeds toward the new one. 

• You perceive better opportunities in a commercial property than what you’re now realizing from one of your residential rentals. Using a 1031 Exchange, you can exchange one kind of property for another, diversifying your investment property types.

You see great leasing potential in a low-priced fixer, but don’t have ready cash for necessary capital improvements. Use a 1031 Exchange to sell an investment property of higher value, purchase the fixer, and apply the difference in “build to suit” improvements.

You’re ready to retire from being a busy landlord for your tenants. Use a 1031 Exchange to purchase low-maintenance vacant land that you can pass on to your heirs.

• You want to move out-of-state to be closer to your grandchildren, but need to preserve your investment properties for generated income and your heirs. Use a 1031 Exchange to sell those properties and purchase replacements in your new home state.


There are four different types of 1031 Exchanges:

Delayed Exchange

Simultaneous Exchange

Built to Suit Exchange

Reverse Exchange


Download The Exchange Resources, Inc. FREE RESOURCE GUIDE

To Speak with an Exchange Specialist call:

Adam Nishikawa - Vice President - Exchange Resources, Inc.

Direct: 619-550-6776   Office: 619-528-1031