Are you tired of the late-night calls about leaky faucets and the constant demands of being a hands-on landlord? Many real estate investors reach a point where their current property no longer aligns with their lifestyle. A 1031 exchange offers a graceful exit strategy, allowing you to sell your high-maintenance property and move your capital into something new without taking an immediate tax hit. This process opens up a world of possibilities beyond traditional rentals. Whether you're looking for the stability of a single-tenant net lease property or the diversification of a Delaware Statutory Trust (DST), understanding the full spectrum of 1031 exchange investment opportunities is the first step toward building a portfolio that works for you, not the other way around.

Key Takeaways

• Keep your capital working for you: A 1031 exchange lets you postpone capital gains taxes, allowing you to reinvest the full proceeds from a sale into your next property. This helps you acquire more valuable assets and compound your wealth over time.
• Plan ahead to meet strict deadlines: The process has firm timelines—you have 45 days to identify a new property and 180 days to close. Success depends on starting your search early and partnering with a Qualified Intermediary before you sell.
• Strategically shift your real estate focus: The "like-kind" rule is flexible, letting you swap a high-maintenance rental for a hands-off commercial property or a passive DST investment. This allows you to adapt your portfolio to match your financial goals and desired level of involvement.

What is a 1031 Exchange?

If you’re a real estate investor, you’ve likely heard the term “1031 exchange” come up. Think of it as a powerful strategy that lets you sell an investment property and roll the proceeds into a new, similar one without immediately paying capital gains taxes. Named after Section 1031 of the U.S. Internal Revenue Code, this process allows you to keep your money working for you, helping you grow your real estate portfolio more effectively.

Instead of taking a tax hit after a sale, you can reinvest the full amount into a new property. This is a popular move for savvy investors looking to trade up, diversify their holdings, or shift their investments to a new market. It’s a strategic way to build wealth over time, but it comes with very specific rules and timelines you need to follow perfectly.

How Tax Deferral Works

Let’s be clear: a 1031 exchange doesn’t mean you never pay taxes. It’s a tax deferral strategy. You’re essentially postponing the tax bill until you eventually sell the new property without exchanging it. This delay can be a huge advantage, allowing you to use the money you would have paid in taxes to purchase a more valuable property. It’s like getting an interest-free loan to grow your investments.

This strategy can become even more powerful for long-term wealth building. If you hold onto the exchanged property for the rest of your life, your heirs may inherit it with what’s called a “step-up in basis,” which could potentially eliminate the deferred capital gains tax altogether.

What Counts as a "Like-Kind" Property?

The term "like-kind" can be a little misleading. It doesn't mean you have to swap a duplex for another duplex. The rules are actually quite flexible. Both the property you sell and the one you buy must be held for business or investment purposes. You could exchange a rental condo for a commercial office building, a piece of raw land for an apartment complex, or a retail space for an industrial warehouse.

The key is that you can't exchange an investment property for a personal residence, like your family home. As long as both properties are used for investment, the IRS allows for a wide range of exchanges, giving you the freedom to explore different types of real estate listings across the LA area.

The Role of a Qualified Intermediary

This is one of the most important rules of a 1031 exchange: you cannot personally receive the cash from the sale of your property. If the money touches your bank account, even for a moment, the exchange is disqualified, and the sale becomes a taxable event. To prevent this, you must work with a Qualified Intermediary (QI).

A QI is a neutral third party who facilitates the transaction. They hold the proceeds from the sale of your old property in an escrow account and then use those funds to purchase your new property on your behalf. Choosing a reputable QI is a critical step in the process, ensuring your exchange complies with all IRS regulations and goes smoothly from start to finish.

Which Properties Qualify for a 1031 Exchange?

When you hear the term “like-kind,” you might think you have to swap an apartment building for another apartment building. The good news is that the definition is much broader than that. The main rule is that both the property you sell and the property you buy must be used for business or investment purposes. You can’t exchange your personal home, but almost any other type of real estate is fair game, as long as it’s within the United States.

This flexibility opens up a ton of strategic possibilities. You could sell a high-maintenance rental property and exchange it for a commercial building with a single, long-term tenant. Or you could sell a piece of undeveloped land and move your investment into a bustling multifamily complex. The goal is to find a replacement property that aligns with your financial goals, whether that means generating cash flow, planning for long-term appreciation, or simplifying your management duties. Understanding which properties qualify is the first step in making a smart exchange.

Commercial Real Estate

If you’re looking to diversify your portfolio, commercial real estate offers a wide range of possibilities. Any property held for business or investment use can qualify for a 1031 exchange. This includes everything from office buildings and retail storefronts to large shopping centers and industrial warehouses. For many investors, moving from residential to commercial is a strategic way to secure long-term tenants and potentially more stable income streams. The key is simply that the property serves an investment purpose, giving you plenty of 1031 exchange investment options to consider as you plan your next move.

Residential Investment Properties

Your rental properties are prime candidates for a 1031 exchange. As long as you don't personally live in the property, it qualifies. This includes single-family homes, duplexes, triplexes, and even large apartment complexes. Many investors in the Los Angeles area use this strategy to scale their portfolios, perhaps by selling a few single-family rentals to acquire a larger multifamily building. This can consolidate management efforts and increase cash flow. If you're looking for a qualifying replacement property, exploring active property listings can give you a clear idea of what’s available on the market.

Land and Development Projects

Yes, even empty land counts. A 1031 exchange allows you to sell an income-producing building and purchase raw land for future development, or vice versa. Both undeveloped land and working farmland are considered “like-kind” to other investment real estate. This is a fantastic strategy for investors looking to shift from active to passive management. For example, you could sell a rental property that requires constant attention and exchange it for a parcel of land in a growing area, holding it as a long-term investment with minimal upkeep. It’s a powerful reminder of how flexible a 1031 exchange can be.

Properties That Don't Qualify

It’s just as important to know what you can’t use in a 1031 exchange. The IRS is very clear that your primary residence—the home you live in—is not eligible. The same goes for a second home or a vacation property that isn't primarily used for rental income. Properties that are bought with the main intention of being quickly resold, like a fix-and-flip project, also don't qualify because they aren't considered long-term investments. Additionally, intangible assets like shares in Real Estate Investment Trusts (REITs) do not qualify for this type of tax deferral.

Know Your Deadlines: Critical 1031 Timelines

When it comes to a 1031 exchange, the calendar is your new best friend. The IRS has strict, non-negotiable deadlines you have to meet to qualify for the tax deferral. It might sound intimidating, but with a bit of planning, it’s completely manageable. Think of these timelines as the rules of the road that guide you from selling your old property to acquiring your new one. Getting these dates right is the most important part of the entire process, so let’s break down exactly what you need to know.

The 45-Day Identification Rule

From the moment you close the sale on your original property, a 45-day countdown begins. Within this window, you must formally identify the potential properties you intend to buy. You can’t just keep a mental list; you need to submit a written, signed document to your qualified intermediary. The rules give you some flexibility—you can typically name up to three properties of any value. This is why it’s so important to start your search early. Having a clear idea of your target investment properties before you even sell will put you in a much stronger position to meet this tight deadline.

The 180-Day Closing Window

After you’ve identified your replacement properties, the next major deadline is the closing. You must acquire and close on one or more of the identified properties within 180 days of selling your original one. It's a common misconception that this is 180 days after the 45-day period. In reality, the 45-day identification window is part of the total 180-day timeline. This means if you use all 45 days to identify a property, you’ll have 135 days left to finalize the purchase. This deadline requires a coordinated effort between you, your real estate agent, and your intermediary to ensure everything goes smoothly.

The "Equal or Greater Value" Requirement

To defer 100% of your capital gains tax, the new property you purchase must be of equal or greater value than the one you sold. This calculation is based on the net sales price of your old property. You also need to reinvest all the cash proceeds from the sale. If you buy a less expensive property or don't reinvest all the funds, you'll likely have to pay taxes on the difference—what's known in the industry as "boot." The first step is understanding what your current property is worth, which will set the benchmark for your next investment. A professional property valuation can give you the clear numbers you need to start planning.

Direct Investment: Your 1031 Exchange Options

When you think about a 1031 exchange, direct investment is likely what comes to mind. This is the most straightforward path: you sell your investment property and use the proceeds to buy another physical property that you will own and manage directly. This approach gives you complete control over your asset, from choosing the property to managing tenants and making decisions about upkeep and improvements. It’s a hands-on strategy that appeals to investors who want to be actively involved in their portfolio.

The beauty of direct investment is the sheer variety of properties available. You aren’t limited to replacing your old property with an identical one. Instead, you can shift your strategy, moving from a high-maintenance residential building to a more passive commercial lease, or from a single property to several smaller ones. Whether you’re looking for steady cash flow, long-term appreciation, or a foothold in a new market sector, there’s a direct investment option that can fit your goals. Let's explore some of the most common and effective choices you can find in today's real estate listings.

Single-Tenant Net Lease Properties

If you’re looking for a more hands-off investment, single-tenant net lease properties are a fantastic option. Often called triple-net (NNN) properties, these are typically commercial buildings leased to a single, creditworthy tenant like a national pharmacy, fast-food chain, or auto parts store. The "triple-net" part means the tenant is responsible for paying the property taxes, insurance, and maintenance costs. This structure provides a predictable, steady stream of income without the day-to-day headaches of property management, making it one of the more popular 1031 exchange investment options. For many investors, it’s the perfect blend of direct ownership and passive income.

Multifamily Buildings

Multifamily properties, from duplexes to large apartment complexes, are a classic choice for real estate investors, and for good reason. They offer multiple streams of rental income from a single property, which helps insulate you from the financial impact of a single vacancy. As a cornerstone of the rental market, multifamily buildings tend to see consistent demand, especially in thriving areas like Los Angeles County. According to recent 1031 exchange trends, these properties remain a top choice for investors seeking both monthly cash flow and the potential for significant long-term appreciation as property values rise.

Office and Retail Spaces

Investing in office buildings and retail spaces allows you to tap into the commercial sector. These properties often come with the benefit of long-term leases, as businesses tend to stay put longer than residential tenants. This can provide a stable and reliable income stream for years. The key to success with office and retail is location—a property in a high-traffic, desirable area is more likely to attract and retain quality tenants. For investors looking to diversify their holdings beyond residential real estate, commercial spaces offer a compelling opportunity to build a well-rounded and profitable portfolio.

Industrial and Warehouse Facilities

The incredible growth of e-commerce has turned industrial properties into one of the hottest sectors in real estate. Warehouses, distribution centers, and logistics facilities are essential to the modern supply chain, creating massive demand from companies big and small. For 1031 exchange investors, this translates into a powerful opportunity. These properties often feature long-term leases with strong tenants and can produce impressive rental yields. Tapping into the industrial market allows you to invest in the backbone of the digital economy, positioning your portfolio for growth in a booming sector.

What is a Delaware Statutory Trust (DST)?

If you're looking for a more hands-off approach to your 1031 exchange, a Delaware Statutory Trust (DST) might be the perfect fit. Think of it as a way to own a fractional interest in a large, high-quality property—or even a portfolio of properties—without the headaches of being a landlord. Instead of buying a property directly, you purchase a beneficial interest in a trust that holds the title. This structure is a popular choice for investors who want to defer their capital gains taxes while moving into a passive investment role.

DSTs open the door to owning a piece of institutional-grade real estate, like a major shopping center, a large apartment complex, or a state-of-the-art medical facility. These are often the kinds of stable, professionally managed assets that are out of reach for individual investors. The trust handles all the management, from collecting rent to making repairs, allowing you to simply receive your share of the income. For many sellers looking to transition out of active property management, the DST offers a streamlined path to passive ownership and diversification across different asset types and geographic locations.

How DSTs Work for Your Exchange

Using a DST for your 1031 exchange simplifies a lot of the process. One of the biggest challenges in a traditional exchange is finding a replacement property that costs the same or more than the one you sold. A DST solves this by allowing you to invest the exact amount of money you need to defer your taxes. If you have $750,000 from your sale, you can invest precisely $750,000 into one or more DSTs, making it much easier to meet the exchange requirements.

This structure also gives you access to a higher caliber of properties. The assets held in DSTs are typically managed by experienced real estate firms that handle everything from tenant relations to property maintenance. This means you can step back from the day-to-day responsibilities of being a landlord while still benefiting from real estate ownership.

The Perks of Passive Ownership

The biggest draw of a DST is the transition to truly passive income. Many DSTs hold properties with "net leases," which is a fantastic arrangement for owners. In a net lease, the tenant is responsible for paying not only rent but also major property expenses like taxes, insurance, and maintenance. This setup creates a highly predictable and stable income stream for you as the investor, since you aren't on the hook for unexpected repair costs.

This hands-off model is ideal for investors who are ready to retire from active property management or simply want to diversify their holdings without adding to their workload. If you're curious about what your current property might be worth and how that could translate into a passive investment, getting a free valuation is a great first step. The goal of a DST is to provide you with regular income without the late-night calls about a broken water heater.

What to Know About DST Management

While the passive nature of a DST is a huge benefit, it comes with certain restrictions you need to be aware of. To maintain its favorable tax status, a DST operates under strict rules. The trustee managing the property cannot make significant changes once the trust is established. This means they can't start major new renovations, develop the property further, or renegotiate leases with existing tenants.

These limitations are in place to ensure the investment remains stable and passive. The property and its income potential are essentially locked in from the start. This isn't necessarily a bad thing—it provides predictability—but it means the investment isn't flexible. Understanding these rules is key to deciding if a DST aligns with your long-term goals. If you have questions about these details, it's always best to contact us for professional guidance.

What is a Tenant-in-Common (TIC) Investment?

If you’re looking for a way to invest in a larger property without footing the entire bill, a Tenant-in-Common (TIC) investment might be the right fit. Think of it as group ownership. A TIC arrangement allows you and several other investors to pool your funds and collectively buy a single property. Each person holds their own fractional ownership interest in the asset.

This structure is a popular choice for 1031 exchanges because it opens the door to investing in institutional-quality real estate—like large apartment buildings or commercial centers—that would typically be out of reach for an individual investor. Instead of buying a small property on your own, you can own a piece of a much larger, potentially more stable asset. This allows you to diversify your portfolio and gain access to different types of real estate listings in high-demand areas. The entire arrangement is formalized in a TIC agreement, which outlines each owner’s stake and the rules of the co-ownership.

How TIC Ownership is Structured

In a TIC structure, your ownership is defined as an "undivided fractional interest." This means that while you own a specific percentage—say, 15% of the property—you don't own a specific physical part of it, like a particular office or apartment unit. Instead, you own 15% of the entire property as a whole. This ownership stake is detailed in the TIC agreement, which is the foundational legal document for the investment.

This structure allows all the co-owners to share in the property's financial performance. You'll receive a proportional share of any rental income generated, and if the property's value appreciates, so does the value of your share. It’s a way to directly participate in the benefits of property ownership, from cash flow to long-term equity growth, without having to manage the entire asset by yourself.

Your Role in Management and Decisions

While a TIC investment can feel more passive than owning a property outright, you aren't just along for the ride. As a co-owner, you have voting rights on important matters concerning the property's management and operations. These rights give you a say in how the investment is run. However, the degree of your influence often depends on the specific terms laid out in the TIC agreement.

It’s important to understand that for most significant decisions, your vote is just one of many. Actions like hiring a new property manager or approving an annual budget are typically subject to a group vote. While you get to participate, major strategic moves often require unanimous agreement from all owners, which can be a significant hurdle. Before you commit to an investment, be sure you understand the decision-making process.

The Challenge of Unanimous Voting

One of the biggest potential drawbacks of a TIC structure is the requirement for unanimous consent on major decisions. This means every single investor must agree before certain actions can be taken. These actions typically include selling the property, refinancing the mortgage, or approving major capital improvements. While this rule is designed to protect all owners, it can easily lead to gridlock.

If just one co-owner disagrees with a decision that everyone else supports, the action cannot move forward. This can create conflict and cause significant delays, potentially preventing the group from capitalizing on a great offer to sell or making necessary upgrades to the property. This is a critical risk to consider, so it’s wise to discuss these complexities with a professional to fully understand the agreement you’re entering into.

Direct vs. Passive: Which Path is Right for You?

Choosing between a direct or passive investment for your 1031 exchange is a big decision. There’s no single right answer—it all comes down to your financial goals, your lifestyle, and frankly, how much you enjoy the landlord life. Think of it as choosing your own adventure in real estate. Do you want to be the one calling the shots and managing the property, or would you rather have a team handle the details while you focus on the big picture? Both paths can lead to success, but they offer very different experiences. Let’s walk through what each one looks like so you can find the perfect fit for your investment strategy.

How Hands-On Do You Want to Be?

Direct investment means you’re in the driver’s seat. You purchase a property outright, whether it's one of the multifamily buildings in LA County or a commercial space, and you manage it yourself. This path gives you complete control over your asset, from choosing tenants to deciding on renovations. It’s a great fit if you have property management experience or want to be deeply involved in your investment's performance. On the other hand, if the thought of late-night maintenance calls makes you cringe, a passive approach might be better. Options like Delaware Statutory Trusts (DSTs) and Tenants-in-Common (TICs) offer fractional ownership, letting you invest in real estate without the day-to-day landlord responsibilities.

Weighing Risk and Control

Your choice also comes down to how you balance risk and control. With direct ownership, you have the final say on everything, but all your capital is tied to the performance of one or two properties. Passive investments change that dynamic. In a Tenant-in-Common (TIC) structure, you share ownership with other investors. While you get some voting rights, major decisions often require unanimous agreement, which can limit your individual control. A Delaware Statutory Trust (DST) is even more hands-off. You entrust your capital to a sponsor who manages a portfolio of properties, allowing you to diversify your investment across different asset types and geographic regions. This can spread out your risk, but it means giving up direct control over management decisions.

Comparing Capital Requirements

Regardless of which path you choose, the financial rules of a 1031 exchange remain the same. To completely defer your capital gains taxes, you must follow the "equal or greater value" rule. This means you have to reinvest all the cash proceeds from your sale and acquire a replacement property of equal or greater value. For example, if you sell a property for $500,000 and have $225,000 in cash proceeds after paying off the mortgage, you must buy a new property worth at least $500,000 and use the entire $225,000 as a down payment. Understanding these capital requirements is crucial for a successful exchange and allows you to strategically grow your portfolio over time.

The Pros and Cons of a 1031 Exchange

A 1031 exchange can be an incredibly powerful tool for real estate investors, but it's not the right move for everyone. Like any major financial decision, it comes with its own set of benefits and drawbacks. Understanding both sides of the coin is the first step to figuring out if this strategy aligns with your investment goals. It’s all about weighing the long-term advantages against the immediate risks and complexities. Let's break down what you need to consider before you move forward.

Pro: Defer Taxes and Build Wealth

The biggest draw of a 1031 exchange is the ability to defer capital gains taxes. When you sell an investment property, you typically owe taxes on the profit. A 1031 exchange lets you postpone paying those taxes by reinvesting the proceeds into a new, "like-kind" property. This means you can use your entire profit to purchase a more valuable property or diversify your portfolio without taking an immediate tax hit. Over time, this tax deferral strategy allows you to build significant wealth by keeping your capital working for you in the market, rather than handing a portion of it over to the IRS after every sale.

Con: Market Risks and Liquidity Issues

The strict timelines of a 1031 exchange can put you in a tough spot. You have just 45 days to identify a replacement property and 180 days to close, regardless of market conditions. This can force you to buy when prices are high or interest rates are unfavorable. Recent data shows a significant decline in 1031 exchange transactions, partly because of these market pressures. Furthermore, your investment remains in real estate, which isn't a liquid asset. If you suddenly need cash, you can't just pull it out; you have to sell the property, which can take time and will trigger the deferred taxes.

Con: Watch Out for Fees and Hidden Costs

A 1031 exchange is a complex process with very specific rules, and mistakes can be costly. One of the most critical rules is that you cannot personally receive the cash from the sale. You must use a Qualified Intermediary (QI) to hold the funds between the sale of your old property and the purchase of your new one. If you don't follow the rules exactly, you could disqualify the exchange and face a large, unexpected tax bill. These professional services come with fees, so you'll need to budget for the costs of the QI, legal advice, and other transaction expenses to ensure everything is handled correctly.

Common 1031 Exchange Mistakes to Avoid

A 1031 exchange is an incredible tool for building wealth in real estate, but it comes with a strict set of rules. The IRS doesn’t leave much room for error, and a simple misstep can disqualify your entire exchange, leaving you with a significant tax bill. The good news is that these mistakes are entirely preventable with a bit of planning and the right team on your side.

Think of the process like a well-choreographed dance—every step has to happen in the right order and at the right time. From hitting your deadlines to choosing the right kind of property and professional partners, getting the details right is everything. Let’s walk through some of the most common pitfalls investors face so you can sidestep them with confidence. By understanding these ahead of time, you can ensure your exchange goes smoothly and successfully defers your capital gains taxes, allowing you to keep your money working for you in your next investment.

Missing Your Deadlines

The timelines for a 1031 exchange are firm and non-negotiable. Once you sell your original property, two critical clocks start ticking simultaneously. First, you have just 45 days to formally identify potential replacement properties in writing. Second, you must close on the purchase of one or more of those identified properties within 180 days from your original sale date.

It’s easy to underestimate how quickly these deadlines approach, especially in a competitive market like Los Angeles. The best way to stay ahead is to start your search for a replacement property before you even close on the one you’re selling. This gives you a crucial head start and reduces the pressure of the 45-day identification window. You must adhere to these strict timelines for a valid exchange.

Choosing the Wrong Property

To defer all of your capital gains taxes, the property you buy must be of equal or greater value than the one you sold. If you sell a property for a net price of $1 million, you need to acquire a new property (or properties) worth at least $1 million. If you purchase a less expensive property—say, for $900,000—you will have to pay taxes on the $100,000 difference. This leftover cash or reduction in debt is known as "boot" and is taxable.

Before you begin your search, work with your real estate agent and tax advisor to calculate the exact target value you need to hit. This ensures you can fully defer your taxes and make the most of this powerful investment strategy.

Partnering with an Unqualified Intermediary

You cannot simply sell a property, hold the cash, and then buy a new one. To execute a 1031 exchange, you must work with a Qualified Intermediary (QI). This neutral third party holds the proceeds from your sale and uses them to acquire your replacement property on your behalf. This step is crucial because it prevents you from having "constructive receipt" of the funds, which would trigger a taxable event.

You must have a written agreement with your QI before you close on the sale of your property. Not all intermediaries are created equal, so it’s vital to choose a reputable and experienced firm. Using an unqualified party can invalidate your entire exchange, so be sure to find a trusted Qualified Intermediary to protect your investment.

How to Start Your 1031 Exchange

Getting started with a 1031 exchange is all about preparation. With strict rules and tight deadlines, you need a clear plan before you even list your property. The process isn't complicated, but every step has to be done correctly to ensure your transaction qualifies for the tax deferral. Think of it as setting up dominoes—if you line them up right from the start, the rest of the process will fall into place smoothly.

The key is to assemble your team and your strategy before the clock starts ticking. This means understanding your goals, identifying potential replacement properties, and knowing exactly who to call when your original property sells. By taking these initial steps, you put yourself in the best position for a successful and stress-free exchange that helps you build long-term wealth.

Find the Right Professionals

A 1031 exchange is not a solo project. Your first step should be to build a team of experts who can guide you. It's essential to talk with your financial and tax advisors to make sure this move aligns with your overall investment strategy. Most importantly, you must use a Qualified Intermediary (QI) to handle the transaction. The QI is a neutral third party who holds the proceeds from your sale. If you receive the cash directly, even for a moment, the exchange is disqualified and the sale becomes a taxable event. A good QI, along with an experienced real estate agent, will keep you on track and ensure you follow every rule.

Do Your Homework on Properties

One of the best parts of a 1031 exchange is its flexibility. You can exchange one type of investment property for another, as long as both are considered "like-kind." This means you could sell a rental house and buy an apartment building, a commercial office space, or even vacant land. The key is that both properties must be held for business or investment purposes. You must formally identify potential replacement properties within 45 days of selling your original one. You can name up to three properties of any value, giving you a few options to pursue as you move toward closing.

Plan Your Timeline and Watch the Market

The 1031 exchange process runs on a very strict schedule. From the day you sell your original property, you have exactly 45 days to identify your replacement property and 180 days to close the entire transaction. These deadlines are firm and have no extensions, so planning is critical. It's also wise to pay attention to the current real estate market. In a market with higher interest rates, for example, properties might stay listed longer, which could give you more negotiating power but also means you need to be diligent in your search. Working with a local expert can help you find the right opportunities within your tight timeline.

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Frequently Asked Questions

What happens if I can't find a replacement property within the 45-day deadline? If you don't formally identify a property in writing within the 45-day window, the exchange is unfortunately disqualified. The sale of your original property will be treated as a standard sale, and you will be responsible for paying capital gains taxes on your profit. This is why it’s so important to start looking for potential replacement properties even before you close on the property you're selling.

Can I take any cash out from the sale for myself? To defer 100% of the capital gains tax, you must reinvest all the proceeds from the sale into your new property. Any cash you receive from the transaction is known as "boot" and is subject to capital gains tax. While you can choose to take some cash out, just know that you will have to pay taxes on that specific amount.

Do I have to trade one property for another single property? Not at all. The 1031 exchange offers a lot of flexibility in how you structure your investment. You can sell one large property and exchange it for several smaller ones to diversify your portfolio. Conversely, you could sell a few smaller properties and consolidate your investment into one larger, more valuable asset. The main rule is that the total value of the property you acquire must be equal to or greater than the total value of what you sold.

Can I use a 1031 exchange for a vacation home? Generally, no. The rules state that both properties in an exchange must be held for productive use in a business or for investment. A home that you use primarily for personal vacations doesn't meet that standard. However, if your property is mainly a rental and your personal use is very limited, it might qualify. This can be a complex area, so it's always best to discuss your specific situation with a tax advisor.

How is a DST different from a TIC investment? Think of it in terms of control and simplicity. With a Tenant-in-Common (TIC) investment, you are a direct co-owner of the property and have voting rights on major decisions, which can sometimes be complicated if the owners disagree. A Delaware Statutory Trust (DST) is a more passive option. You own an interest in a trust that holds the property, and a professional manager handles all decisions, giving you a completely hands-off investment experience.

By: Cameron Samimi

Author Bio: As one of the top producers in Los Angeles County for apartment buildings and recognized as one of the most respected real estate advisors, Cameron brings a wealth of information to the table to help his clients with real estate taxes, valuations, and maximizing returns. Cameron is our top agent here at Lyon Stahl and has led the fastest-growing real estate career we have ever seen at our company. The Los Angeles Business Journal recently recognized Cameron these past two years by nominating him for “Broker of the Year.” During his time at Lyon Stahl, he has received several awards including Top Producer (’18,’19,’20,’21,’22,’23) and High Velocity (’18,’19,’21,’22,’23) among others, and stands alone as our only agent to reach the Senior Vice President level with the company. It is hard to find a broker that is more trusted than Cameron. His ability to navigate new laws and market opportunities has helped him set market records for sales prices time and time again for his clients and bring them well above market returns. Cameron is an expert on 1031 Exchange Strategies, Real Estate Taxes, Apartment Flips, Underwriting and Valuations, and can help you or your clients maximize your real estate returns.