Answer
How does a 1031 exchange work on an LA apartment sale?
A 1031 exchange defers capital gains tax when you reinvest sale proceeds into like-kind US real estate. The Qualified Intermediary must be in place before you close the relinquished sale. You then have 45 days to identify replacement property and 180 days total to close on it. Cameron coordinates both sides so the timeline works.
Key takeaways
- The Qualified Intermediary must be engaged before the relinquished sale closes.
- 45 days to identify replacement property in writing; 180 days total to close.
- Both clocks start on the close of escrow of the property you sold.
- Replace equal or greater value and debt to fully defer the gain.
- DSTs and NNN assets are common backstops if the 45-day clock gets tight.
The two hard clocks
45 days to identify (written, to the QI, up to 3 properties or the 200% rule). 180 days to close. Both clocks run from the same day: your relinquished property's close of escrow. Miss either clock, the exchange fails.
How we de-risk it
We surface replacement candidates in parallel with your listing so identification isn't a scramble. DSTs and NNN backstops are pre-vetted for anyone at risk of missing the 45-day clock.
1031 exchange timeline
| Milestone | Deadline | Consequence of missing it |
|---|---|---|
| Engage QI | Before relinquished close | Exchange is void |
| Identify replacement | Day 45 | Exchange fails; gain is taxable |
| Close replacement | Day 180 | Exchange fails; gain is taxable |
Step by step
- 1
Engage a Qualified Intermediary
Sign QI documents before the relinquished property closes. Touching the proceeds yourself disqualifies the exchange.
- 2
Close the relinquished sale
Proceeds go directly to the QI. Close of escrow starts both the 45-day and 180-day clocks.
- 3
Identify replacement property in 45 days
Deliver written identification to the QI: up to three properties, or more under the 200% rule.
- 4
Close within 180 days
Acquire an identified property within 180 days of the relinquished close, replacing equal or greater value and debt.
Local context
Most of Cameron's South Bay and Long Beach sellers are exchanging out of management-heavy, rent-regulated LA product into larger or lower-maintenance assets. Because our buyer list and inventory pipeline run in parallel with each listing, replacement candidates are usually on the table before the 45-day clock starts.
Related questions
Can I do a 1031 exchange out of California?
Yes, into any like-kind US real estate. California claws back deferred state tax when the replacement property is eventually sold, tracked through annual FTB Form 3840 filings.
What happens if I only reinvest part of the proceeds?
The portion not reinvested is 'boot' and is taxable. The remainder of the gain still defers.
Can I 1031 into a DST?
Yes. A Delaware Statutory Trust interest qualifies as like-kind replacement property and is often used when the 45-day clock is running short.
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