1031 Exchange Guide
Defer capital gains when selling California investment property
1031 Exchange — Complete Guide
A 1031 exchange allows real estate investors to sell an investment property and defer capital gains taxes by reinvesting the proceeds into another like-kind property. One of the most powerful tax strategies in U.S. tax code — and one of the most strictly governed.
- 45 days from closing to identify replacement properties.
- 180 days from closing to complete the purchase — or your tax-return due date, if that comes first. File an extension to keep the full 180 days.
- A qualified intermediary (QI) holds the proceeds. You cannot touch the funds.
- To defer all of the gain, buy a replacement of equal or greater value and reinvest all the cash.
- California recognizes 1031 exchanges but enforces its own claw-back: trade California property for out-of-state property and you file FTB Form 3840 every year until the deferred gain is recognized.
Who Should Consider a 1031 Exchange
- Trading a smaller rental for a larger property
- Consolidating multiple properties into one
- Relocating capital to a new market
- Avoid immediate capital gains tax
- Move to a low-maintenance property
- Delaware Statutory Trust (DST) as a passive option
- Large gain deferral opportunities
- Reinvest into residential or commercial
- Diversify property type or geography
Types of 1031 Exchange
- Delayed Exchange — most common; sell first, then identify and buy the replacement.
- Reverse Exchange — buy the replacement first, then sell the existing property.
- Improvement Exchange — use exchange proceeds to renovate the replacement property.
- Simultaneous Exchange — both properties close on the same day.
- Real property only — since 2018 (Tax Cuts and Jobs Act), personal property no longer qualifies for a 1031 exchange.
- Missing the 45-day identification deadline. No ordinary extensions exist.
- Receiving funds directly. Constructive receipt immediately triggers the tax.
- Identifying more than three properties without meeting the 200% or 95% rules.
- Moving into the exchange property as a primary residence too quickly.
- Using an intermediary who doesn't qualify — your own agent, attorney, or accountant from the past two years can't serve as your QI.
General information, not legal or tax advice. Laws, figures and deadlines change — verify with your attorney or CPA before acting. Figures checked October 2026. LK Fox Real Estate · Laura Fox CA DRE #01750945 · Kevin Fox CA DRE #01330038 · brokered by TNG Real Estate · Equal Housing Opportunity.
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