A Section 1031 exchange can defer gain and depreciation recapture on qualifying real property, but it is a transaction process with unforgiving timing. The taxpayer cannot receive sale proceeds, a qualified intermediary must be in place before closing, replacement property must be identified on time, and value, equity, debt, ownership, and use all affect deferral.
We model the tax economics and coordinate with your qualified intermediary, attorney, broker, and closing team. The separate 1031 exchange guide explains the rules, and the free 1031 deadline calculator maps the calendar dates; this engagement applies them to the relinquished property, replacement options, and return.
Pre-Sale Gain & Recapture Modeling
We reconstruct adjusted basis, depreciation, capital improvements, selling costs, suspended passive losses, and state tax. That shows the tax cost of a taxable sale and establishes the amount potentially deferred.
- Adjusted basis and depreciation schedule review
- Federal gain, depreciation recapture, and state tax estimate
- Debt, equity, value, and potential boot calculation
- Suspended passive loss and installment-sale considerations
- Comparison of full exchange, partial exchange, and taxable sale
- Cash reserve and estimated-tax planning
Transaction Structure & Deadline Coordination
A qualified intermediary must be engaged before the relinquished property closes. The 45-day identification and exchange periods run concurrently, the exchange period can end before day 180 at the applicable federal return due date, and a failed replacement deal does not itself extend either period. Specific IRS disaster relief can postpone deadlines for eligible transactions.
We help the transaction team identify tax questions early, while the qualified intermediary handles exchange documents and the attorney advises on legal ownership and contracts.
Boot, Debt & Ownership Consistency
Cash retained, non-like-kind property, or net debt relief can produce taxable boot. Replacing only the sale price without considering debt and transaction costs can leave an unexpected taxable amount.
The taxpayer that sells generally must acquire the replacement property. Changes involving individuals, disregarded LLCs, partnerships, trusts, or spouses require review before documents are signed.
State Tax & Return Reporting
States differ in conformity, withholding, and tracking of deferred gain when replacement property is outside the state. Some require annual information returns or preserve a claim on the deferred state gain.
We prepare or coordinate Form 8824, establish replacement-property basis, update depreciation, and carry state tracking into future returns through our multi-state preparation service.
1031 Exchange Planning FAQs
When should I contact a tax advisor about a 1031 exchange?
Before listing is ideal and always before closing. The gain estimate, ownership, qualified intermediary, replacement financing, and alternatives should be reviewed while the transaction can still be structured.
Do I have to reinvest every dollar?
You can complete a partial exchange, but cash retained or net debt relief may be taxable boot. Full deferral generally requires acquiring replacement property of sufficient value and reinvesting the required net equity while replacing debt or adding cash.
Can I exchange a rental into a future primary residence?
Replacement property must be acquired and held for qualified investment or business use. A later conversion may be possible when facts demonstrate a genuine investment period, but personal-use and home-sale exclusion rules require advance planning.
Are qualified intermediary fees included in your service?
No. A qualified intermediary is an independent transaction party and charges separately. We provide tax modeling, review the proposed structure, coordinate tax questions, and prepare the exchange reporting.
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