Selling a rental property with a 1031 exchange
How a like-kind exchange works, the 45-day and 180-day clocks, and what it means if you sell to a cash buyer.
No obligation. No pressure. Takes about 2 minutes.
The short answer
A 1031 exchange lets you defer tax on the gain when you sell real property held for business or investment and buy other like-kind real property. You have 45 days after the sale to identify the replacement and must receive it within 180 days or by your tax return's due date with extensions, whichever comes first. The sale money generally goes to a qualified intermediary instead of to you, and the rules don't depend on how the buyer pays, so a cash buyer can be part of an exchange.
Step by step
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1
Confirm the property qualifies
It has to be real property held for business or investment, like a rental. A home used only as your personal residence doesn't qualify, and neither does property held primarily for sale, like a flip.
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2
Line up a qualified intermediary before closing
If you receive the sale money yourself before you get the replacement property, the IRS treats it as a sale, not an exchange. A qualified intermediary holds the funds so that doesn't happen.
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3
Watch the 45-day clock
The replacement property has to be identified within 45 days after you transfer the property you're selling. Start looking before you close.
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4
Close on the replacement in time
You must receive the replacement within 180 days, or by the due date of your tax return including extensions, whichever is earlier.
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5
Know what's still taxable
If you also receive money or other property that isn't like-kind, you recognize gain up to that amount. The exchange is reported on Form 8824.
Sources: 26 U.S.C. § 1031 · IRS Instructions for Form 8824 · 26 CFR § 1.1031(k)-1 · IRS: Like-Kind Exchanges, Real Estate Tax Tips
This page explains the general federal rules. It isn't tax advice. Exchanges have strict requirements, so work with a tax professional and a qualified intermediary before you sign a contract.
Cash offer vs listing
Example: a $250,000 home
| Offer | $205,000 |
|---|---|
| Repairs | $0 |
| Commissions | $0 |
| Closing costs | $0 |
| You walk away with | $205,000 |
| In 7 to 14 days | |
| Sale price | $250,000 |
|---|---|
| Repairs | about $8,000 |
| Commissions | about $13,800 |
| Closing and holding | about $6,000 |
| You walk away with | about $222,200 |
| In 60 to 90 days | |
Example only. Your numbers depend on your home and market.
Exchange or not, we'll show the cash offer next to what listing could net, so you know how much you're carrying into the next property.
Frequently asked questions
Can I do a 1031 exchange if I sell to a cash buyer?
Yes. The rules are about the property and what you do with the proceeds, not how the buyer pays. Tell the buyer and the settlement company early so your qualified intermediary can be built into the closing.
Can I use a 1031 exchange on the home I live in?
Not if it was used only as your personal residence at the time of the exchange. The home-sale exclusion in our capital gains guide may apply instead.
What happens if I miss the 45-day or 180-day deadline?
Property identified or received after those deadlines isn't treated as like-kind, so the gain is generally taxable. Talk to your tax professional and intermediary before you sign a contract.
Who are you?
We are real estate investors based in Baltimore, helping homeowners since 2016. We buy houses directly for cash. We are not a licensed real estate brokerage and do not list homes ourselves; if listing could get you more, we show you the math so you can choose.