Most investors who look for a way around a 1031 are in one of three spots: they cannot find a property worth buying, the new loan costs far more than the old one, or they want some of the money in hand. All three are decided before closing, and after closing it is too late to add the best option.
By Hans Goldstein, EA · Updated October 15, 2026
The main alternatives to a 1031 exchange are an installment sale, a Delaware statutory trust, an Opportunity Zone fund, a partial exchange that taxes only the cash you keep, a charitable remainder trust, a §721 exchange, or paying the tax. Most must be set up before closing; once the money sits with your qualified intermediary, fewer remain. A partial 1031 means you buy replacement property for part of the price and take the rest as cash ("boot"); you pay tax only on the boot. The deadline that matters is not day 45 or day 180. It is closing day. A structured sale has to be written into the purchase contract before closing. On a $3.2 million rental, taking $700,000 as boot costs about $258,712 in tax if it lands in one year, and about $152,870 if paid over 10 years. Email me the sale price and basis for your number.
It depends on why you are looking. Find your row. Dated October 15, 2026.
| Your situation | Best-fit alternative | Why | Set up by |
|---|---|---|---|
| No replacement property worth buying | Installment sale, or pay the tax | The buyer pays in full at closing and a third party pays you over years you choose; the tax follows the payments | Before closing |
| The new loan rate is far above your old one | Partial 1031 (buy less, borrow less), or an installment sale | You avoid the expensive debt and pay tax only on the cash you keep or on each payment | Before closing |
| You want some cash and some real estate | Partial 1031 exchange | Tax is due only on the cash and debt relief you receive (boot) | Before the 45-day deadline |
| You want out of management | Delaware statutory trust interest, or a §721 exchange | Passive ownership, but illiquid, with sponsor fees | Within the 45 and 180 days |
| You want the gain taxed less and have capital to invest | Opportunity Zone fund | Tax rules differ for gain only, not recapture; check the current rules | Within 180 days of the sale |
| You are charitable and want income | Charitable remainder trust | Sell inside the trust; income for life or a term | Before the sale contract |
| You may hold for life | Hold for the step-up | Heirs' basis resets to the value at death (IRC §1014) | Nothing to file |
A partial 1031 exchange means you buy replacement property for part of the price and keep the rest. You owe tax on the cash and debt relief you receive, called boot, up to your total gain (the IRS like-kind exchange page, updated May 1, 2026). Depreciation recapture on the part you keep is taxed in the year of the sale, even if you later report the rest on the installment method (IRS Publication 537). Rates on the gain you keep for 2026: 0%, 15% or 20% on long-term gain depending on income (IRS Rev. Proc. 2025-32, section 3.03), 25% maximum on the depreciation part (IRS Topic 409), and 3.8% net investment income tax where it applies. Run your own boot with the 1031 boot calculator, and see what to do if you owe tax on boot for ways to spread it.
You must identify replacement property in writing by day 45 after the old property closes, and close on it by day 180 or your tax return due date, whichever is earlier (Treas. Reg. §1.1031(k)-1). Three rules limit what you can name:
| Rule | What it allows |
|---|---|
| Three-property rule | Name up to three properties of any value |
| 200% rule | Name any number of properties if their combined value is no more than 200% of what you sold |
| 95% rule | Name any number of properties if you buy at least 95% of the value you named |
You have three real choices. Buy a cheaper property and pay tax on the cash you keep. Let the exchange fail and pay the tax when the money is released. Or, if the old property has not closed yet, write a payout structure into the sale contract so the gain is spread. After closing, with the money at your intermediary, the payout option is gone for that sale. For the day-by-day version, read failed 1031 exchange: your options after the deadline.
If the sale has not closed, you still have every option: write a partial 1031, an installment sale through a structured arrangement or a charitable remainder trust into the plan before the closing date. If the money is already with your qualified intermediary, a structured sale is no longer possible for this sale, and you are choosing between buying a replacement, a Delaware statutory trust or an Opportunity Zone fund, and taking the money as boot.
Day 45 is only the date to identify replacement property and day 180 is the date to close. The date that decides your options is closing day. On a $3,200,000 rental sold in 2026, $700,000 of boot cost about $258,712 in tax in one year and about $152,870 when paid over 10 years. The buyer pays in full at closing either way, and you are not the bank.
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| Option | It works when | It fails when |
|---|---|---|
| Pay the tax in a cash sale | You need all the money now, or the gain is small. | A large gain and recapture land in one year, in the highest brackets. |
| Full 1031 | You can find and buy a good replacement for the full price and debt. | You cannot find one in 45 days, or the new loan costs far more than the old one. |
| Partial 1031 with boot | You buy replacement property for part and take the rest as cash. | The boot lands in one year at up to 25% on depreciation plus the other layers. |
| Installment sale through a structured arrangement | Part or all of the price paid over years; the buyer pays in full at closing and you are not the bank. | The money is already with the intermediary, or the contract was signed with no payout language. Payments cannot be sped up. |
| Delaware statutory trust as replacement | You want a passive replacement inside the same 45 and 180 days. | Sponsor fees, no say in management, and the interest is hard to sell. |
| Opportunity Zone fund | You have cash equal to the gain to invest within 180 days. | Recapture does not qualify and the tax still comes due. |
| Charitable remainder trust | You are charitable and want income for life or a term. | It is irrevocable, what is left goes to charity, and it must be set up before a binding sale agreement. |
Combinations are common: a partial 1031 plus an installment sale through a structured arrangement on the boot. Each piece has its own deadline, and the earliest one is closing day.
A married California investor sells a rental for $3,200,000. Adjusted basis is $1,100,000 after $800,000 of depreciation, selling costs are $160,000 and the loan is $1,200,000. The realized gain is $1,940,000. Other income is $150,000 a year. The plan is a partial 1031 with $700,000 not reinvested. Run October 14, 2026 with the Goldstein & Co. engine: 2026 federal brackets, the 3.8% net investment income tax and AMT (IRS Rev. Proc. 2025-32), and 2026 California brackets.
| Boot taxed in 2026 | Boot paid over 10 years | |
|---|---|---|
| Tax on the full $1,940,000 gain, if no exchange | $732,197 (37.7%) | Not applicable |
| Tax on $700,000 of boot | $258,712 | $152,870, plus $64,645 on the interest |
| Yearly payment on the boot | Not applicable | $90,653 |
| After-tax boot money at year 10, if untouched | $632,480 cash | $724,359 paid out ($91,879 more) |
The model assumes the first dollars of boot are 25% unrecaptured §1250 gain, and your CPA decides the allocation. The 5.0% payout rate is an assumption, not a quote, and the year 10 line assumes nothing is spent and both paths earn 5.0%, taxed every year. These are estimates. The structured piece is only possible if it is written into the contract before closing.
If it fell through before day 45 ends, identify another property in writing. If it fell through after day 45, you can only close on another property you identified in time, which is why a backup matters. If none will close by day 180, the money you did not use is boot and is taxed as your CPA reports it. See what to do after a missed deadline.
Yes. An exchange is not a contract with the IRS. You can let it lapse, and the unused money is boot reported under the exchange agreement and the regulations. What you cannot do after the money reaches the intermediary is add an installment sale through a structured arrangement to this sale.
Yes, if it is written into the sale before closing. Part of the price buys replacement property in the exchange and the boot goes into an installment sale through a structured arrangement. The buyer pays in full at closing and you are not the bank. Your CPA and exchange attorney should read both documents.
Yes. A Delaware statutory trust interest is treated as real property for a 1031 (Rev. Rul. 2004-86), so it can be a backup on your identification list. Check the sponsor's fees, the hold period and whether the offering can close inside day 180 before you rely on it.
It can work if you are charitable and set it up before a binding sale agreement. The trust sells the property without tax at sale, and you are taxed as it pays you (IRC §664). It is irrevocable and what is left goes to charity, so talk to an estate attorney first.
Run your own numbers: 1031 calculator; 1031 boot calculator; structured sale calculator. More problems like this one: forced to sell? step-by-step guides.
Sources, checked October 15, 2026: IRC §1031, like-kind exchanges; Treas. Reg. §1.1031(k)-1, exchanges with a delayed closing; IRC §453, installment method; IRC §664, charitable remainder trusts; IRC §1400Z-2, Opportunity Zones; Rev. Rul. 2004-86, Delaware statutory trust interests.
The exchange fails if you do not identify a property in 45 days or close in 180 (IRC §1031(a)(3)), and there are no real extensions outside disaster relief. If you do not want to own anything new, or the market has nothing you want, the exchange is the wrong tool. Do not wait for day 44 to find out. The question to ask now is: if I do not find one, what is my plan for the money?
To postpone all the tax you have to replace the debt or add cash (debt replacement rule). Take a hypothetical: a $1,200,000 loan at 4% costs $48,000 a year in interest; replacing it at 7% costs $84,000, which is $36,000 a year more. That is real money against the tax you saved. See negative leverage and whether a 1031 is worth it in 2026.
Many exchanges are partial by choice. Anything you do not put into replacement property, plus debt you do not replace, is boot, taxed in the year of the sale. The first dollars of boot are generally taxed as unrecaptured §1250 gain at up to 25% to the extent of the depreciation you took. A 1031 boot calculator prices it, and this page covers boot in detail.
A married California investor sells a rental for $3,200,000. The adjusted basis is $1,100,000 after $800,000 of depreciation, selling costs are $160,000, and the loan is $1,200,000. The realized gain is $1,940,000. Other income is $150,000 a year. The investor plans a partial 1031, with $700,000 not reinvested.
| Pay the tax now | Full 1031 | Partial 1031, boot paid over 10 years | |
|---|---|---|---|
| Tax on the $1,940,000 gain | $732,197 (37.7%) | $0 now (postponed, not erased) | Only on the boot |
| Tax on $700,000 of boot, all in 2026 | $258,712 | ||
| Tax on the $700,000 of boot, paid over 10 years | $152,870 (plus $64,645 on the interest) | ||
| Yearly payment on the boot | $90,653 | ||
| After-tax boot money at year 10, if untouched | $632,480 cash vs $724,359 paid out ($91,879 more) |
A 5-year payout on the same boot lowers the tax on it to $190,327 and pays $161,682 a year. The shorter the payout, the less is saved. The model assumes the first dollars of boot are 25% gain. Your CPA decides how the gain is allocated.
Run on October 14, 2026 with the Goldstein & Co. engine: 2026 federal brackets, the 3.8% net investment income tax and AMT (IRS Rev. Proc. 2025-32), and 2026 California brackets. The 5.0% payout rate is an assumption, not a quote. After-tax money at year 10 assumes nothing is spent and both paths earn 5.0%, taxed every year. These are estimates, not a quote.
| When | What is still possible |
|---|---|
| Before you sign the sale contract | Everything: full 1031, partial 1031, a structured sale on part or all of the price, a charitable remainder trust (before a binding agreement). |
| After the contract, before closing | A structured-sale clause can still go into the purchase contract and the exchange agreement. The buyer pays the same price; part of it goes to an assignment company instead of to your intermediary. |
| Closing day: money lands with the qualified intermediary | A structured sale is no longer possible for this sale. A partial or full exchange is still running. |
| Day 45 | Identification of replacement property ends. |
| Day 180 | The exchange ends. Funds not used are boot, and are generally reported when you can receive them (Treas. Reg. §1.1031(k)-1(j)(2)). See what a failed exchange leaves you. |
That is why every exchange advisor should ask one question while the sale is still being negotiated: what happens to the money if the exchange does not work? The Keep the Exchange playbook is written for exchange advisors who want to keep the exchange and plan the part that does not fit before closing.
The two clocks run from the day the old property closes (IRC §1031(a)(3); Treas. Reg. §1.1031(k)-1(b)). Dated October 14, 2026.
| Where you are | What is still possible | What is not |
|---|---|---|
| Before the old property closes | Everything: a structured payout or a partial 1031 can be written into the contract at no cost to the buyer | Nothing is lost yet |
| Days 1 to 45, no replacement found | Identify up to three properties, buy less than you sold (partial 1031), or let the exchange fail and report the gain when the money is received | A new identification list after day 45 |
| A replacement deal fell through after you identified it | Close on another property you identified in time; the identification cannot be changed after day 45 | Adding a new property after day 45 |
| Day 45 passed with nothing identified | The exchange agreement may let you receive the money after the 45th day; the gain is then reported when received (Treas. Reg. §1.1031(k)-1(j)(2)) | Starting a structured payout, because the money is already with the intermediary |
| Day 180 or the tax return due date, whichever is earlier | Close on any identified property | Extensions, except a federally declared disaster postponement |
| After a failed exchange | Pay the tax on the gain when received; see what to do after a missed deadline | Going back and writing a structure into the old sale |
Six ways to sell investment real estate without paying the whole gain in one year, next to the 1031 itself. Rules as of October 14, 2026.
| Option | Buy replacement property? | What happens to the tax | Main trade-off | When you must decide |
|---|---|---|---|---|
| 1031 exchange (baseline) | Yes: like-kind real property, equal or greater value and debt | Postponed, recapture included (IRC §1031) | You stay in real estate; 45 days to identify, 180 to close | Before closing; an intermediary holds the money |
| Structured installment sale | No | Taxed as each payment arrives, over the years you choose (IRC §453) | Fixed payments you cannot speed up; they depend on the paying insurer; §1245 recapture is taxed in year one (§453(i)) | In the purchase contract before closing |
| Delaware statutory trust | Yes: the trust interest is the replacement property (Rev. Rul. 2004-86) | Postponed, same as a 1031 | Passive and illiquid; sponsor fees; no say in management | Inside the same 45 and 180 day clock |
| Deferred sales trust | No | Reported as an installment sale to a trust; no IRS ruling approves it | Trustee and promoter fees; audit and challenge risk (see the risks) | Before closing |
| Opportunity Zone fund | No, you invest the gain in a fund | Capital gain postponed. For money invested after December 31, 2026: 5 years, a 10% basis increase (30% in a rural fund), and growth held 10 years excluded (IRC §1400Z-2 as amended by P.L. 119-21) | You must reinvest cash equal to the gain; §1245 recapture does not qualify; the tax still comes due | Within 180 days of the sale |
| Charitable remainder trust | No | The trust sells without tax at sale; you are taxed as it pays you (IRC §664) | Irrevocable; what is left goes to charity | Before a binding sale agreement |
| Pay the tax | No | All taxed this year: 0/15/20% federal, up to 25% on depreciation, 3.8% NIIT, plus state (2026 brackets, IRS Rev. Proc. 2025-32) | Simplest and fully liquid; usually the most expensive on a large gain | Any time |
If you only need the clause as a backup, see a structured sale as a 1031 backup, and for combining the two, 1031 and installment sale together. Technical detail: the 1031 rules, 1031 boot and a failed exchange on Big Sale Tax.
Send me the sale price and rough basis. Within one business day I'll email you the actual number and the Seller's Guide to §453. If it doesn't fit your deal, I'll tell you that plainly.
No retainer · no obligation. Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
Questions answered below: Alternatives to a 1031 exchange · The 45-day and 180-day clocks · Boot, debt, loan rates and partial exchanges · How a 1031 exchange works: intermediaries, property and rules · Tax, basis and reporting questions · By state
A Delaware statutory trust is a trust that owns real estate, and a beneficial interest in one that meets Rev. Rul. 2004-86 is treated as direct ownership of real property, so you can buy it as 1031 replacement property. It can be a landing place when you cannot find a property to run yourself, because interests are available with a short closing.
The trade-offs are real. You are a passive owner with no say in sale, refinance or management. Fees are charged by the sponsor, interests are hard to sell, and most offerings are limited to accredited investors. Ask about the sponsor's track record, total fees and how the loan works. It is a different thing from a deferred sales trust, which is not an exchange. Our 1031 exchange alternatives table compares the two.
A 721 exchange (often called an UPREIT) means you contribute real estate to a REIT's operating partnership in return for partnership units, with no tax at that moment under IRC §721. It is not a 1031: you end up holding units in a partnership, not real property, and you cannot later do a 1031 with them.
Tax is postponed until you sell or redeem the units, though your heirs may receive a stepped-up basis at death. The drawbacks: you lose control, the units can be hard to sell, and you may have no say on when a taxable event occurs. Some investors enter a 721 after a Delaware statutory trust, when the sponsor offers a path into the REIT.
A 1033 exchange is for an involuntary conversion: your property is destroyed, stolen, or taken by condemnation or eminent domain. You can postpone the gain if you reinvest the insurance or condemnation proceeds in similar property, generally within 2 years after the end of the tax year you first have a gain, or 3 years for condemned real property held for business or investment (IRC §1033).
No intermediary and no 45-day rule apply, but the replacement must be similar in use, and you must reinvest all the proceeds, not just the gain. If the sale was voluntary, 1033 is not available and a 1031, installment sale or paying the tax are the choices.
A 1031 exchange is for real property held for investment or business. A 1035 exchange is for insurance and annuity contracts, such as swapping one annuity for another, and has its own rules under IRC §1035. You cannot use a 1035 for real estate or a 1031 for an annuity.
If you are selling real estate and thinking about an annuity, the real choice is between exchanging into more real estate, paying the tax, or spreading the gain with an installment sale. Do not buy an annuity with sale proceeds just to avoid tax; that does not postpone the tax by itself.
Yes. An installment sale under IRC §453 lets you report the gain as you are paid, so the tax is spread over years instead of landing in one. It works best for a large gain when you do not want to buy replacement property. It must be built into the sale before closing.
The honest limits: depreciation recapture is taxed in year one, it does not suit a gain under about $500,000 or someone who needs all the cash now, and unpaid installment gain at death is income with no step-up (IRC §691(a)(4)). With a structured installment sale, the buyer pays in full at closing and you are not the bank. You can also pair it with a partial 1031: exchange most of the price and structure the rest, which the worked example above prices.
It is a different tool, not a substitute. Under the opportunity zone rules, you reinvest only the gain from a sale, not all the proceeds, into a qualified opportunity fund within 180 days. A 1031 reinvests the full proceeds in real estate. The 2025 tax legislation rewrote parts of the opportunity zone program, so the benefits depend on the date you invest.
Because the details changed and depend on dates, I do not give current terms here. If you want to look at it, ask a CPA to confirm the rules that apply to your investment date and who can sponsor the fund. The first 15-minute scope call is free if you want help comparing the options.
Yes, if you are charitably minded. You transfer the property to an irrevocable charitable remainder trust, which sells it without paying tax on the sale. The trust pays you an income stream for life or a term, taxed to you as it is paid out under the trust's tier rules (so the tax is spread, not erased), and what is left goes to charity (IRC §664).
The rules are strict: the payout must be at least 5% of the trust value each year and the charity's remainder interest must be at least 10%. It has to be set up before you sign a binding sales contract. You give up the principal, which suits investors with no need to pass the full value to heirs. Ask an estate attorney to draft it.
A 1031 exchange is worth it when you want to stay in real estate, you can find a property you would buy anyway, and the new loan is close to the old one. It is not worth it when you buy something you do not want just to beat day 45, when the new rate costs more each year than the tax you postpone, or when you want cash.
A 1031 postpones the tax, it does not erase it: your old basis and depreciation carry into the new property, and the tax comes due on a later taxable sale unless heirs get a step-up at death. Compare two numbers side by side: the tax due now, and what the next ten years cost you in higher interest, fees, vacancy and risk on the new asset. The worked example above prices the difference, and the calculator runs yours.
Without a 1031, you cannot erase the gain on a sale, but you can lower or spread it: use a structured installment sale, where the buyer pays in full at closing and you are not the bank, so the gain is taxed as you receive payments, give the property to a charitable remainder trust before you sign a sales contract, hold it until death so heirs get a stepped-up basis (IRC §1014), time the sale into a low-income year, or use the home exclusion if you lived in it two of the last five years (IRC §121).
Federal long-term capital gain is 0% only up to taxable income of $98,900 MFJ or $49,450 single in 2026, so the 0% bracket helps only with a small gain. Each route has a cost: a structured payout means you receive the money over years, a charitable trust gives part of the value to charity, and holding until death means you never get the cash. A CPA should run your case.
If you cannot find a replacement property, you have six real options: a partial 1031 (buy something smaller and pay tax only on the cash you keep), a structured installment sale, a Delaware statutory trust as your replacement, a charitable remainder trust, a qualified opportunity fund for the gain only, or paying the tax. Which ones are still open depends on whether the sale has closed.
Before closing, all six are available. After closing, the exchange you already started (full or partial) and paying the tax remain, because a payout structure or a charitable trust cannot be added once the sale has closed. A qualified opportunity fund has its own 180-day window and changing rules, so confirm the current terms with a CPA. Use the comparison table above, and read failed 1031 exchange if the closing already happened.
No, you cannot extend either deadline by asking. The only relief is for a federally declared disaster or similar event, when the IRS can postpone deadlines under IRC §7508A, and for military or combat-zone service. A slow lender, a delayed appraisal or a seller who is late does not count.
One thing helps in practice: the 180 days end at the due date of your return if that is earlier, and filing an extension on the return moves that end date back to day 180. For everything else, plan with a margin. A backup property on the list is the extension that works.
You can identify up to three properties of any value (the three-property rule). You can identify more than three if their combined value is no more than 200% of what you sold (the 200% rule), or any number if you then buy at least 95% of the total value you identified (the 95% rule).
Most investors use the three-property rule and name a real backup. You can change the list until day 45, not after. A property you buy before day 45 is treated as identified. Source: Treas. Reg. §1.1031(k)-1(c)(4).
Generally no. A delayed exchange needs a qualified intermediary and an exchange agreement in place before your old property closes, and the sale proceeds must go to the intermediary, not to you. If the money already hit your account, the exchange is not available for that sale, and there is no do-over.
If the sale has not closed yet, call an intermediary today. Many can set up in a day or two. If it has closed and you hold the cash, your options are to report the sale and plan the tax, or to ask your CPA whether anything in your documents changes the result. See the failed exchange page for what the rules still allow.
You must close on the replacement property within 180 days of selling the old one, or by the due date of your tax return for the year of the sale (including extensions), whichever comes first. The 45 days run inside the 180, not on top of them.
The trap: if you sell in the fall, April 15 can arrive before day 180. Filing an extension of your tax return keeps the full 180 days. This is in IRC §1031(a)(3). Ask your CPA to file the extension before the original due date if your 180 days cross it.
You have 45 calendar days from the day your old property closes to identify, in writing, the replacement property you may buy. The list must be signed by you, describe each property clearly (an address or legal description) and reach your intermediary or another party who is not disqualified by midnight on day 45.
Weekends and holidays count, and day 45 is not extended. The 45 days run inside the 180 days, not after them. Mistakes here end more exchanges than anything else, so send the list a few days early and keep proof of delivery. The rule is in IRC §1031(a)(3) and Treas. Reg. §1.1031(k)-1(b) and (c).
To avoid boot, buy replacement property worth at least as much as the property you sold, reinvest all of your net equity, and replace all of the debt (or add cash for any shortfall). Also keep ordinary bills out of the exchange fund: items that are not exchange costs, such as prorated rent, a tenant deposit credit or a repair reimbursement, can be boot if paid from the intermediary's account.
Ask your intermediary and your CPA to walk through the settlement statements before closing so no stray cash lands on you. If a small amount of boot cannot be avoided, it is usually taxed only up to that amount, not on the whole gain.
Mortgage boot is the debt you are relieved of that you do not replace. If you sell with a $1,000,000 loan paid off at closing and buy with an $800,000 loan, you have $200,000 of mortgage boot, taxable up to your gain, unless you add $200,000 of your own cash.
The rule runs one way: extra cash from you can offset lost debt, but extra new debt cannot offset cash you take out (IRC §1031, Treas. Reg. §1.1031(d)-2). The new loan does not need the same rate, lender or term. Keep the debt equal or greater, or bring cash, and no gain is recognized on the debt.
Boot is taxed in the year you sell, up to your total gain. Part of the gain may be unrecaptured §1250 gain, taxed at up to 25% to the extent of the depreciation you took, and the rest is long-term capital gain at 0%, 15% or 20% federal in 2026. The 3.8% net investment income tax and your state tax may apply on top.
Your CPA works out how the gain is allocated between those layers, so the effective rate on boot can be higher than the usual capital gain rate. The worked example above shows boot of $700,000 costing about $258,712 if all taxed in one year, as of October 2026.
Boot is anything you get in a 1031 exchange that is not like-kind real estate: cash, debt relief, or other property. Boot is taxed in the year of the sale, but only up to the gain on the property. So a sale with $400,000 of gain and $100,000 of boot is taxed on $100,000, and the other $300,000 is postponed.
The common kinds are cash boot (money you keep), mortgage boot (debt you are relieved of and do not replace) and other property (a vehicle, equipment or furniture thrown in). The rule is IRC §1031(b). The tax on boot is covered in the next section.
Yes. In a partial 1031 you buy replacement property for part of the price and take the rest as cash. You pay tax only on the boot, and the gain on the part you reinvest is postponed. A replacement that is smaller than the sale does not break the exchange, it just creates boot.
Two checks decide how much is taxed: did you reinvest all your net equity, and did you replace the debt? Anything short of either is boot. Taking some cash out is a choice many investors make on purpose. See the worked example above, and note that a structured payout on the boot has to be written into the sale contract before closing, with the buyer paying in full at closing and you not the bank.
It may not be. A 1031 exchange only postpones the tax, while a higher loan rate costs you real money every year. If a replacement purchase moves you from a 4% loan to a 7% loan on $1,200,000 of debt, that is $36,000 a year more in interest. Compare that number, year by year, with the tax you are postponing.
Loans are allowed on replacement property, and the rate is not a tax rule. The tax rule is the debt replacement rule: to postpone all the gain you need new debt at least equal to the old debt, or cash from you to make up the difference. If the new debt would be too expensive, ask whether a partial exchange with less debt and a smaller purchase, plus tax on the boot, nets you more. See the loan-rate section above.
Not on the partnership's property. The partnership owns it, so the partnership is the taxpayer that can exchange, and a partner cannot exchange the entity's building on their own. A partnership interest itself cannot be exchanged (IRC §1031(a)(1)). A co-owner with a deeded tenancy-in-common share is different: that share is real property and can be exchanged.
If partners disagree, a drop and swap sometimes splits the group. See selling a TIC, LLC or partnership stake for the steps and risks.
A reverse 1031 exchange means you buy the replacement property first, then sell the old one. Because you cannot own both, a company called an exchange accommodation titleholder holds title to one of them under a safe harbor (Rev. Proc. 2000-37). The same clocks apply: identify the property to be sold within 45 days, and complete within 180 days.
It costs more: a second set of closing costs, a fee to the titleholder and a loan or cash to buy first. It fits an investor who found the right property before a buyer for the old one. If you only worry about finding a replacement in 45 days, a reverse removes that deadline but adds a different one. Ask an exchange attorney before relying on it.
Not right away. The replacement property must be bought with the intent to hold it for investment or business use. If you convert it to your home too soon, the IRS can say the exchange was never valid. For a dwelling, the Rev. Proc. 2008-16 safe harbor sets the rental and holding tests, and the usual advice is to rent it for at least two years before you move in.
When you later live in it, IRC §121(d)(10) requires 5 years of ownership before the home sale exclusion applies to property acquired in a 1031 exchange, and the exclusion is reduced by depreciation taken. Plan with your CPA before you buy.
No, not on your personal residence. A 1031 exchange applies to property held for investment or for use in a business, not a home you live in. Selling your main home has its own tax break, the $250,000 or $500,000 home sale exclusion if you lived there two of the last five years. A vacation home can qualify only if you rented it out and kept your own use low.
The IRS safe harbor in Rev. Proc. 2008-16 asks that you own a dwelling at least 24 months after the exchange, rent it at fair rental value for 14 days or more in each of two 12-month periods, and use it yourself no more than the greater of 14 days or 10% of the days rented. Ask your CPA to confirm the facts.
Yes, but only through an improvement exchange (also called a build-to-suit or construction exchange). The intermediary or an exchange titleholder holds title to the replacement property while the work is done. Only improvements completed by day 180 count as value received, and work done after you take title, paid with your own money, does not.
If the construction runs past day 180, the unspent exchange money becomes taxable boot. Plan the budget and schedule with an exchange attorney before you start, and ask whether the contractor can bill within the window.
The tax code sets no fixed number of days. What matters is intent: you must have held the old property, and must intend to hold the new one, for investment or business use, not for sale. Many advisors want at least a year of ownership on each side, and long enough that nobody can call it a flip.
One real number applies to related parties. If you exchange with a relative or a related entity, both sides must keep what they received for 2 years, or the exchange is undone (IRC §1031(f)). Holding for a year also gets you long-term capital gain rates on any boot.
Your qualified intermediary holds the money, and you cannot touch it. If you have actual or constructive receipt of the funds, meaning you can get them on demand, the exchange fails and the whole gain is taxed. Your exchange agreement limits when you may receive the money.
The closing agent sends the sale proceeds straight to the intermediary and, at the replacement closing, the intermediary pays the seller. Do not sign anything that lets you pull funds early. Interest earned on the funds is generally taxable income to you, so ask the intermediary how it is paid and reported.
In practice, no. A delayed exchange, where you sell first and buy later, needs a qualified intermediary under the safe harbor in Treas. Reg. §1.1031(k)-1(g)(4), because you cannot hold the money. Your own attorney, CPA or agent cannot fill that role if they acted for you in the last two years.
A true simultaneous swap, where two owners trade deeds without cash changing hands, is rare. If you try to run an exchange yourself, the IRS can treat you as having received the sale money, and the whole gain becomes taxable. The intermediary fee is small compared with that risk.
Only real property held for investment or business qualifies for a 1031 exchange today. Since 2018, stock, equipment, vehicles, notes and partnership interests do not qualify (IRC §1031(a)(2) and (a)(1)). Land, rentals, farms and commercial buildings do, and U.S. real property must be exchanged for U.S. real property; foreign real property can only be exchanged for foreign real property (§1031(h)).
Real property is read broadly: a building can be exchanged for land, an apartment for a farm, a lease of 30 years or more for real estate. Inventory held for sale, such as a flipped house, does not qualify. Personal-property parts of a building, such as cost-segregated equipment, need care, since they can create boot.
A 1031 exchange is not allowed when the property is not real estate held for investment or business, when you take the money out yourself, when the time limits are missed, or when it is a swap with a related party that is sold within two years. It is also not allowed on a home you live in, inventory, or a partnership interest.
Other common failures: a name mismatch (the person who sells must be the person who buys), an identification list that is late or unsigned, and a replacement that costs less than the sale without a plan for the boot. A good intermediary and exchange attorney catch most of these before closing.
A qualified intermediary (QI), also called a facilitator or accommodator, holds your sale proceeds, signs the assignment paperwork so you never touch the money, and pays for the replacement property at closing. You, and anyone who has been your agent in the last two years (your attorney, CPA, broker, or an employee), cannot be the QI (Treas. Reg. §1.1031(k)-1(g)(4)).
Before you pick one, ask whether your funds sit in a segregated account, how they are insured and bonded, who can sign for the account, and what happens to the interest. A cheaper fee is not worth risking the principal. Hire the intermediary before you sign the sale contract so the contract can include the exchange clause.
California follows the federal 1031 rules, with extra paperwork: if you exchange California property for property in another state, California requires an annual filing of FTB Form 3840 so it can tax the postponed gain when you eventually sell the out-of-state property. It also has real estate withholding on sales, with exemptions for qualifying exchanges. See the state notes below and confirm on the Franchise Tax Board forms.
The 45 and 180 days, the intermediary, boot and debt rules are the same as federal. If you plan to leave California after an exchange, that tax follow-up is the main surprise.
For the buyer, a 1031 exchange changes almost nothing: their price, loan and taxes are the same. The contract usually adds a cooperation clause, a few lines that say the buyer will sign the assignment to the intermediary at no cost to them. The money goes to the intermediary, not to you, so the buyer wires it where the closing agent says.
Put the clause in before you sign the contract. If the buyer is also exchanging, both sides use intermediaries and the closing agent coordinates. Ask your attorney to review the wording.
Yes. As of October 2026, IRC §1031 is still in the tax code for real property held for investment or business. The big change was in 2018, when the law narrowed it to real property only, so equipment, vehicles and artwork no longer qualify. The 45-day and 180-day rules did not change.
Rules can change, and proposals to limit 1031 appear from time to time. Check the current law or ask your CPA before a sale. This page is dated, and the rules in it are as of October 2026.
There is no limit on how many 1031 exchanges you can do or how often. Each one is a separate exchange with its own 45 and 180 days. Investors often roll one into another for decades, and the postponed gain follows the property through each exchange.
Two checks apply each time: you must hold each property for investment or business use (not as inventory for resale), and related-party sales have a two-year rule (IRC §1031(f)). Your basis keeps shrinking with depreciation, so the eventual gain gets larger. That is why the end of the chain matters as much as the next exchange.
Replacement property must be like-kind real estate held for investment or business, bought in the same name as the seller, and, to postpone all the gain, worth at least as much as the property you sold. Like-kind is broad: you can trade a rental house for land, an office for an apartment building, or a farm for a shopping center.
Three checks keep the gain fully postponed: the purchase price is equal or greater, all net equity is reinvested, and debt is equal or greater (or you add cash). Title should match the seller: if you sold as an individual, buy as an individual or a disregarded entity you own, and ask your attorney before changing ownership after closing. Source: IRC §1031; Treas. Reg. §1.1031(k)-1.
A 1031 exchange lets you sell investment or business real estate and postpone the capital gains tax by buying other like-kind real estate. A qualified intermediary holds the money, you name replacement property within 45 days, and you close within 180 days (IRC §1031).
Postponed is not forgiven. Your old basis and depreciation carry into the new property, so the tax comes due when you eventually sell without another exchange, unless your heirs inherit it at a stepped-up basis. This page is about what to do when the exchange does not fit; the three reasons a 1031 stops making sense are above.
A 1031 exchange postpones depreciation recapture, it does not avoid it. If you replace with equal or greater value, no recapture is due now, but the old depreciation follows you into the new property. When you finally sell without an exchange, tax at up to 25% on that unrecaptured §1250 gain (IRC §1(h)(1)(E)) is due. If you hold until death, your heirs' basis resets (IRC §1014) and the recapture goes away.
Recapture can also be triggered inside an exchange if you take boot, or if the old property had personal property components such as equipment that are not replaced with like property. Your CPA runs that number.
Your basis in the replacement property is its purchase price minus the gain you postponed, which is the same as your old adjusted basis plus any additional cash you put in, plus gain you recognized, minus boot you received (IRC §1031(d)). For example, if your old basis was $400,000, the sale gain was $600,000, and you bought a $1,200,000 property by adding $200,000, the new basis is $600,000.
Depreciation continues on the carried-over part and restarts on the added part. A lower basis means less depreciation going forward and a bigger gain at the next sale. Your CPA tracks this on Form 8824.
Exchange costs such as the intermediary fee and the usual closing costs are treated as part of the sale or purchase, and generally reduce the gain or add to the basis instead of being deducted. Paying them from the exchange funds is normal and does not create boot, but paying non-exchange items (such as a repair bill) from those funds can.
Interest the intermediary pays on your exchange funds is generally taxable income to you in the year paid. Your CPA should treat fees consistently on Form 8824. Costs vary by firm, so ask for a written fee quote before you sign.
You report a 1031 exchange on Form 8824, filed with your tax return for the year you gave up the old property. Any recognized gain (boot) then goes to Form 4797 or Schedule D and Form 8949. If the old property closed in 2026 and the replacement in 2027, you file the 2026 Form 8824 and continue on the 2027 return.
The form needs the dates of each transfer, the value and basis of both properties and the debt on each, and it computes the basis of the new property. Keep the exchange agreement, closing statements and identification letter for as long as you own the new property, plus a few years. Forms and lines change, so check the current instructions or ask your preparer.
Start with the realized gain: sale price, minus selling costs, minus your adjusted basis. In a full exchange that equals the postponed gain. Your recognized gain is the lesser of that gain or the boot you received (IRC §1031(b)). Boot is the cash you keep plus debt you are relieved of and do not replace.
Then apply the rate layers: up to 25% on unrecaptured §1250 gain, 0%, 15% or 20% on the rest, the 3.8% net investment income tax when modified AGI is over $250,000 MFJ or $200,000 single, and state tax. The calculator runs the sale price, basis and boot together; a CPA confirms.
When you sell a property you bought in a 1031 exchange, the postponed gain from the earlier property is added to the new gain, because your basis is carried over. You can do another 1031 exchange and keep postponing, or sell for cash and pay tax on the whole accumulated gain, including all the depreciation recapture, in that year.
If you sell soon after buying, the IRS may question whether you bought it for investment. If you want to live in it first and use the home exclusion, IRC §121(d)(10) requires 5 years of ownership for property acquired in an exchange. A sale of a replacement property is a new decision point, so plan it the way you would plan the first sale.
When you die owning property you held through 1031 exchanges, your heirs generally receive a stepped-up basis to its value at death (IRC §1014), and the postponed gain is generally gone for them. That is why some investors exchange for the rest of their lives instead of selling.
The estate may still owe estate tax if it is above the exemption ($15,000,000 per person in 2026). Holding until death only helps if you do not need the cash. If you do, the choices on this page, a partial exchange, an installment sale or paying the tax, come back into play. Ask an estate attorney, since step-up can differ for property held in some trusts (Rev. Rul. 2023-2).
No tax is due when a full 1031 exchange is completed. The tax is postponed: it comes due on the year you sell the last replacement property without another exchange, or on any boot you took in the year of the sale. At death, heirs generally get a stepped-up basis and the postponed gain may vanish.
The tax on boot or on a later sale is long-term capital gain (0%, 15% or 20% in 2026), up to 25% on depreciation, and 3.8% net investment income tax when modified AGI is over $250,000 MFJ or $200,000 single, plus state tax. Rules as of October 2026; IRC §1031.
Most states follow the federal 1031 rules, so the 45 and 180 days, boot and intermediary rules do not change. The few differences that matter are what happens to the postponed gain when you leave the state and what withholding applies. Rules as of October 2026. Confirm on the state return or with a preparer.
| State | What can differ |
|---|---|
| California | If you exchange California property for property in another state, California requires an annual filing (FTB Form 3840) so it can tax the postponed gain when you sell the out-of-state property. California's top rate is 13.3%. Real estate sales by sellers outside the state may trigger withholding; qualifying exchanges can be exempt. Check the Franchise Tax Board instructions. |
| Texas, Florida, Nevada | No state income tax on the gain. Washington's 7% capital gains tax does not apply to real estate. (Top rate or no tax, confirm on your return.) |
| All other states | Most follow federal treatment and tax the gain when it is eventually recognized. If you move states after an exchange, ask your preparer where the postponed gain will be taxed. Nonresident sellers may face withholding on a sale; ask the intermediary and the closing agent. |
A partial 1031 (tax only on the cash you take), a structured installment sale (IRC §453), a Delaware statutory trust inside the exchange, an Opportunity Zone fund, a charitable remainder trust, or paying the tax. The right one depends on whether you want to buy more real estate, how much cash you want, and whether you have a charitable goal.
You buy replacement property worth less than the one you sold, or you take some cash. The cash and any debt not replaced are boot, taxed in the year of the sale. The rest of the gain is postponed. A boot calculator prices the split.
If you cannot identify one within 45 days or close within 180, the exchange fails and the gain is taxed. A structured installment sale can serve as the backup, but only if it is written into the purchase contract before closing. After closing, it is too late.
A higher rate raises your carrying cost every year. In a hypothetical, replacing a $1.2 million 4% loan with a 7% loan costs $36,000 a year more in interest. Compare that to the tax you save, and the alternatives, before you commit.
Yes, but it is boot and is taxed in the year of the sale. The boot can sometimes be paid over several years instead (IRC §453(f)(6)), if that is written into the contract and the exchange agreement before closing.
Generally no. The IRS grants relief only for specific disasters. That is why the backup plan must be in place before closing.
Yes. The part that goes into replacement property is exchanged, and the part that does not can be paid over time. It has to be in the contract and the exchange agreement before closing.
The first 15-minute scope call is free. A written analysis is $5,000. The calculators and this page are free.
Before the old property closes you can add a structured payout or plan a partial 1031. After closing, if nothing is identified by day 45, you can let the exchange fail and pay tax on the gain when the money is released, or buy a smaller replacement and pay tax only on the cash and unreplaced debt (boot). The day-by-day table above shows what is still open.
If you identified other properties in time, you can close on one of those. You cannot add a new property after day 45. If nothing closes by day 180 or the tax return due date, the exchange fails and the gain is taxed when you receive the funds.
You have three real choices: buy a cheaper property and take the rest as taxable boot, let the exchange fail and pay the tax, or, if the old property has not closed yet, write a structured payout into the sale so the gain is spread. After closing with the money at the intermediary, the structure option is gone.
The main alternatives are an installment sale, a Delaware statutory trust, an Opportunity Zone fund, a partial exchange that taxes only the cash you keep, a charitable remainder trust, a §721 exchange, or paying the tax. The best fit depends on why you are not doing a straight exchange. See the table above.
You can lower or spread it, not usually erase it. An installment sale spreads the gain over years, holding until death resets the basis, and a charitable remainder trust changes who pays. Depreciation recapture is taxed in year one on an installment sale.
The exchange fails and the gain is taxed in the year you receive the money. If you reinvest only part, you owe tax on the cash and debt relief you keep (boot).
Yes. An installment sale set up before closing spreads the gain across the years you are paid, so the tax follows the payments. The buyer pays in full at closing and a third party pays you; you are not the bank.
Yes. You buy replacement property for part of the price, and you pay tax only on the cash and debt relief you keep. See the partial 1031 exchange section above.
Up to three of any value, or any number if their combined value is no more than 200% of what you sold, or any number if you buy at least 95% of the value you named.
These are estimates. Have a qualified tax professional run your real numbers in a 15-minute scope call.
Book my 15-minute callThis is an estimate. Getting it right down to the tee takes your actual tax forms (returns, K-1s, depreciation schedules), a consult and a paid analysis. The first 15-minute scope call is free; the written analysis is $5,000. On a funded structure the insurer pays a one-time commission to the brokerage firm that places it; it is built into the annuity pricing, not a separate fee.
A plain-English guide for sellers on how a structured installment sale can help you net more after tax when you sell a business, practice, or property. It covers the math, the alternatives, and how to tell if your deal fits.
Leave your details and the PDF downloads right away. Within one business day Hans will email a preliminary read on which structure fits your deal. No retainer. On a funded structure, the insurer pays a one-time commission of about 4% of the amount structured to the brokerage firm that places it (Hans’s share is about 2.4%; no trail). It is built into the annuity pricing, not a separate fee.
📞 Hans Goldstein · 213-414-2808 · CA Insurance License #4273294 · Independent §453 specialist · Goldstein & Co. LLC
Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
Hans Goldstein is an Enrolled Agent, admitted to practice before the Internal Revenue Service. Not affiliated with or endorsed by the IRS. General education, not tax or legal advice for your situation.
