What Is a 1031 Exchange?
A 1031 exchange (named after IRS Section 1031) allows a real estate investor to sell an investment property and defer capital gains taxes — indefinitely — by reinvesting the proceeds into a like-kind replacement property. The tax is not eliminated; it is deferred until you eventually sell without exchanging. If you hold the replacement property until death, your heirs receive a stepped-up basis and the deferred tax may never be paid.
The Tax Math — Why This Matters
The Full 1031 Cycle
This is the complete process — from sale to replacement property financing to cash-out refi — that keeps your equity compounding without a taxable event:
Pre-Qualify for Replacement Financing
We pre-qualify you for a DSCR loan on the replacement property before your sale closes. This is the step most investors skip — and why most exchanges fail. You need to be able to move on day one of the 45-day identification window.
Sell the Relinquished Property
Your property closes. The proceeds go directly to a Qualified Intermediary (QI) — you never touch the money. The 45-day identification clock starts the moment the sale closes.
Identify the Replacement Property
You have 45 days to identify up to three potential replacement properties in writing to your QI. Zach works the buy side — finding the right property, negotiating, and getting you under contract before the window closes.
Finance and Close the Replacement
We close the DSCR loan on the replacement property. The QI transfers the exchange proceeds to the seller at closing. You now own the replacement property — with the full equity intact and zero capital gains paid.
Cash-Out Refinance
Once the replacement property seasons, a DSCR cash-out refi lets you pull equity as a loan — not income — so there are no capital gains taxes on the proceeds. You now have liquid capital to deploy into the next deal, and the cycle continues.
Why Most 1031 Exchanges Fail
Financing Was Not Ready
The most common failure point. The investor finds the replacement property but cannot close in time because the lender was not pre-approved. We solve this by starting the financing process before your sale closes.
The Team Was Not Coordinated
The QI, attorney, lender, and agent were all working in separate lanes. We quarterback the entire stack — one point of contact, one timeline, no dropped balls.
The 45-Day Window Ran Out
Investors waited too long to start looking for the replacement property. Zach starts working the buy side before your sale closes so you have options identified on day one.
The Replacement Did Not Appraise
The replacement property came in low and the deal fell apart. We work with lenders who understand investment property valuations and have experience with 1031 exchange timelines.
Who This Is For
- ✓ Investors with significant appreciation looking to reposition equity without a tax hit
- ✓ Landlords consolidating multiple properties into one larger asset
- ✓ Investors trading up to a larger or better-performing property
- ✓ Portfolio owners moving from residential to commercial assets
- ✓ Investors relocating their portfolio to a different market
- ✓ Anyone who wants to keep 100% of their equity working instead of sending a check to the IRS
Frequently Asked Questions
What is the 45-day identification rule?
From the day your relinquished property closes, you have exactly 45 calendar days to identify potential replacement properties in writing to your Qualified Intermediary. You can identify up to three properties of any value, or more properties under certain value rules. Missing this deadline — even by one day — disqualifies the entire exchange.
What is the 180-day closing rule?
You must close on the replacement property within 180 calendar days of your relinquished property sale (or by your tax return due date, whichever is earlier). The 180-day window runs concurrently with the 45-day window — it does not start after the 45 days end.
What qualifies as a like-kind property?
The definition is broader than most people realize. Any investment real estate qualifies as like-kind to any other investment real estate — a single-family rental for a multifamily, a commercial building for raw land, a rental condo for an apartment complex. Both properties must be held for investment or business purposes, not personal use.
Do I need a Qualified Intermediary?
Yes — a QI is required by IRS rules. You cannot receive the sale proceeds yourself; doing so immediately disqualifies the exchange. The QI holds the funds and transfers them to the replacement property seller at closing. We work with a vetted QI who specializes in investor transactions and understands the financing timeline.
How do you finance the replacement property?
We use a DSCR loan on the replacement property — qualifying on the property's rental income, not your personal income. No W-2s, no tax returns, close in your LLC. If the timeline is tight, a bridge loan can secure the replacement property while the DSCR loan is processed.
Can I do a 1031 exchange if the property is in an LLC?
Yes. The exchange must be done by the same entity that owned the relinquished property. If your LLC sold the property, your LLC must purchase the replacement. We close DSCR loans in LLCs routinely — this is not a complication for us.
What happens after the exchange — can I pull cash out?
Yes — and this is the most powerful part of the full cycle. Once the replacement property seasons (typically 6-12 months), a DSCR cash-out refinance lets you pull equity as a loan, not income. There are no capital gains taxes on the proceeds. You deferred the gain on the sale, and now you have liquid capital again — without a taxable event.
What is boot and how do I avoid it?
Boot is any value you receive from the exchange that is not reinvested into the replacement property — including cash, mortgage relief, or personal property. Boot is taxable in the year of the exchange. To defer 100% of the capital gain, the replacement property must be equal to or greater in value than the relinquished property, and all net proceeds must be reinvested.
Ready to Get Started?
Get pre-qualified for replacement property financing before your sale closes. No cost, no commitment.
