A 1031 exchange lets you sell investment or business real estate and defer capital gains tax by reinvesting the proceeds in other real estate. For Bay Area owners sitting on large gains, it can be the difference between trading up and writing a big check.
Get a free property value and refinance analysis →
The basics
- Like-kind: real property held for investment or business use can be exchanged for other real property held the same way. An office building can become a warehouse, a retail center or rental property.
- Qualified intermediary: you can't touch the sale proceeds. A qualified intermediary holds the funds between the sale and the purchase.
- Equal or greater value: to defer all of the tax, you generally buy property of equal or greater value and reinvest all the net proceeds.
The two deadlines
| Deadline | What happens |
|---|---|
| 45 days after the sale | Identify replacement property in writing |
| 180 days after the sale | Close on the replacement property |
These deadlines are strict, so line up replacement options before you list.
California-specific points
If you sell California property and buy replacement property in another state, California tracks the deferred gain and requires annual reporting to the Franchise Tax Board. California may tax that gain when the out-of-state property is eventually sold.
Selling because a loan is maturing?
If your commercial loan is coming due, a sale paired with a 1031 exchange can move your equity into property that pencils at today's rates.