1031 Exchanges are a powerful investment tool, but they often raise a lot ofquestions. This guide will answer the most common questions and help you feelconfident navigating the 1031 Exchange process.

FAQ’sWHAT IS THE MAIN BENEFIT OF A 1031 EXCHANGE?

The biggest advantage is deferring capital gains tax. This means you can keep your equity working for you and reinvest all of it into your next property instead of paying taxes immediately.

DOES MY PROPERTY QUALIFY FOR A 1031 EXCHANGE?

It depends on how you’ve used the property. Any real property held for business,trade, or investment typically qualifies for a 1031 Exchange.

WHAT PROPERTIES DO NOT QUALIFY?

Some properties are excluded from 1031 Exchanges

Primary residences used as your home before the sale.
Property held for resale (e.g. new construction, fix-and-flips, or developed lotsales).
Vacation homes where personal use exceeds 10% of the rental use.

WHAT DOES “LIKE-KIND” MEAN?

“Like-kind” simply means any real property held for investment can be exchanged for any other real property held for investment.

You do not need to buy the same type of property.
- Example: You can exchange an office building for a single-family rental,warehouse, or retail center—if they are all held for investment.

WHAT ARE THE DEADLINES FOR A 1031 EXCHANGE?

Two strict deadlines apply:

45-Day Identification Period: You must identify potential replacement properties within 45 days of selling your property.1
80-Day Exchange Period: You must close on your replacement property within180 days of the sale.

*These deadlines cannot be extended except in rare cases of federally declared disasters or extreme event.

WHAT IS THE ROLE OF A QUALIFIED INTERMEDIARY (QI)?

A QI is a critical partner in your exchange. They:1. Explain IRS rules and deadlines.

Hold your exchange funds safely during the process.
Help you comply with property identification rules.
Transfer funds during your replacement property purchase.

*Without a QI, you cannot complete a valid exchange.

HOW DOES A 1031 EXCHANGE HELP MY INVESTMENT STRATEGY?

A 1031 Exchange can:

Leverage your gains to purchase more property or higher-value property.
Increase monthly income by exchanging into properties with better cash flow.
Relocate your investments to new markets or states.
Reduce management workload by exchanging into lower-maintenance properties.

WHAT IS “BOOT” IN A 1031 EXCHANGE?

“Boot” is anything you receive in an exchange that isn’t like-kind property—and it’s taxable.
Types of boot:

Cash Boot: Receiving leftover cash from the sale or at closing.
Mortgage Boot: If you don’t replace the debt from the sold property.
- Example: Sell for $600k with a $200k loan payoff → buy a $400k property
  using only cash → the $200k debt reduction is taxable.

DO I HAVE TO EXCHANGE ALL MY FUNDS?

No. You can do a partial exchange, but any amount you keep is considered boot
and will be taxed.

CAN I EXCHANGE PROPERTY ACROSS STATES?

Yes. You can sell in one U.S. state and buy in another without issue.

CAN I EXCHANGE PROPERTY BETWEEN COUNTRIES?

No. Domestic and foreign properties must stay separate. You cannot exchange aU.S. property for a property outside the U.S. (or vice versa).

ARE THERE RISKS IN A 1031 EXCHANGE?

While generally low risk, challenges include:

Not finding a replacement property in time (45 days).
Delays with new construction properties that might not close within 180 days.

*Working with a Qualified Intermediary helps prevent these issues and ensures compliance with IRS

Have more questions about 1031 Exchanges?

We’re here to make this process simple. Our team can guide you through every step—from selling your current property to reinvesting in your next.

Mark Giesecke

512.626.4479

mark.giesecke@compass.com

Advanced Guide to 1031 exchange can be viewed here:

1031 Exchange Explained: Rules, Timeline, and FAQs for Real Estate Investors