1031 Exchange Rules – Can I Do A Section 1031 Exchange With My Rental Property?
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2026 · CAN I DO A SECTION 1031 EXCHANGE WITH MY RENTAL PROPERTY?
Will you be able to clearly
identify (and document) a
replacement property
within 45 days of the
date of sale of your
relinquished property?
You likely do not meet the
qualifications for a Section
1031 exchange, and the
sale of your property may
be recognized as a fully
taxable event.
Consider other replacement
property identification
strategies (e.g., “up to three
properties” rule, 200% rule,
95% exception, etc.) in case
your preferred property has
issues with closing on time.
Consider using a QI to
mitigate the risk of
making any mistakes
when implementing a
Section 1031 exchange.
Will you be able to
successfully close on a
replacement property
within 1) 180 days of the
date of sale of your
relinquished property, or 2)
the due date of your tax
return for the tax year in
which your property was
sold (whichever comes
first)?
No
Yes
No
Is the exchange value of
the property you are
buying (i.e., purchase
price plus any qualified
expenses) greater than
or equal to the exchange
value of the property
you are selling (i.e., gross
sale price less any
deductible sales costs)?
This may be a full 1031
exchange. The capital gains
and depreciation recapture
of your relinquished
property may be eligible
for full tax deferral.
This may be a “partial”
1031 exchange. A portion
(but not all) of the capital
gains and depreciation
recapture of your
relinquished property may
be eligible for tax deferral.
The remainder will be
taxable.
Is the person or entity
you are exchanging with
considered a “related
party” (e.g., sibling,
spouse, business in which
you have greater than
50% ownership, etc.)?
Will you receive any “boot”
as part of your transaction
(e.g., cash proceeds you
retain from the sale, “debt
relief” due to having a
lower mortgage on your
new property, receiving
non-like-kind property as
part of the exchange, etc.)?
Any “boot” received may
be taxable unless you take
actions to reduce it (e.g.,
reinvest all cash into the
new property, ensure the
mortgage amount on the
new property is the same
as your old property, etc.).
No
Yes
Yes
No
Yes
No
Yes
No
No
Yes
Have you owned the rental
property you plan to sell
(and do you plan to own
the replacement property)
for at least two years?
Be mindful that, depending
on your circumstances,
the IRS may view this as a
house flip due to the short
turnaround time, and may
disallow the Section 1031
exchange.
Be mindful of other factors
that may affect your
situation (e.g., “reverse”
exchanges, personal use of
property, tax reporting
requirements, etc.), and be
sure to enlist the help of a
professional.
Both you and the related
buyer of your relinquished
property must hold your
respective properties
for two years after the
sale to avoid any tax
consequences (i.e.,
retroactive disallowance of
the 1031 exchange).
Yes
No
Do the rental properties
you plan to sell and
purchase meet the
definition of a “like-kind”
exchange, and are both
properties held for
investment, trade, or
business purposes under
Section 1031?
Yes
Have you involved the use
of a Qualified Intermediary
(QI) to help facilitate the
transaction(s) and ensure
compliance with the
process of implementing a
Section 1031 exchange?
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Aaron Vaughn
30400 Detroit Road Suite 305a Westlake, OH 44145
aaron@defiantservicesllc.com
| 440-385-0208 |
www.defiantservicesllc.com
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