Commercial Real Estate Guide
A 1031 exchange lets an investor defer federal capital gains tax by reinvesting the proceeds of an investment property sale into like-kind replacement property. Texas has no state income tax on the gain, which makes the federal deferral the main event — and the timelines unforgiving.
The clock starts the day your relinquished property closes. Within 45 calendar days you must identify replacement property in writing to your qualified intermediary. Within 180 calendar days (or your tax return due date, if earlier) the exchange must be completed.
These are calendar days, not business days, and they do not pause for holidays or financing delays. The most common reason an exchange fails is a thin identification list.
Most investors use the three-property rule: identify up to three replacement properties of any value. Alternatives include the 200% rule and the 95% rule, which allow more candidates under value constraints.
Practically, that means starting the replacement search before you go under contract on the sale. In competitive DFW submarkets, three real, available, financeable options are harder to line up than investors expect.
For real estate, like-kind is interpreted broadly. Investment or business-use real property can generally be exchanged for other investment or business-use real property — a retail strip center for industrial, raw land for an office building, and so on.
Property held primarily for resale and personal-use property do not qualify. Since the 2017 tax law changes, personal property no longer qualifies for 1031 treatment at all.
To fully defer, you generally need to reinvest all net proceeds and replace the debt you paid off. Cash left over, or a reduction in debt not offset by new cash, is treated as boot and can be taxable.
Closing prorations, seller credits and personal property allocations can also create unintended boot. Have your CPA review the settlement statement before closing, not after.
Northwest DFW — Flower Mound, Denton County and the surrounding corridors — offers a mix of small retail, flex, industrial and net-leased product that fits a wide range of exchange budgets.
We help exchange buyers build a realistic identification list, pressure-test the underwriting on each candidate, and coordinate with the intermediary and lender so the 180-day deadline is not the constraint.
Section 1031 is federal. Texas does not impose a personal state income tax on capital gains, so the deferral benefit is primarily federal. Texas-specific issues tend to be transactional — title, survey, property tax and franchise tax considerations.
You have 45 calendar days from the sale closing to identify replacement property and 180 calendar days to close on it, or your tax filing due date for that year if that comes first.
Yes, land held for investment or business use generally qualifies as like-kind real property. Land held primarily for resale as inventory typically does not.
Yes. If you take actual or constructive receipt of the sale proceeds, the exchange fails. A qualified intermediary must hold the funds between closings.
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