Your Guide to 1031 Exchange Rules for Commercial Property

A 1031 exchange is one of the most powerful tax-deferral strategies available to real estate investors. Understanding the rules — and following them precisely — is essential to a successful exchange.

The Core Rule: Like-Kind Property

Your replacement property must be "like-kind" to your relinquished property. For real estate, this is broadly interpreted: you can exchange an apartment building for an office building, raw land for a retail center, or a warehouse for a multifamily property. What matters is that both properties are held for investment or business use.

Critical Timelines

• 45-Day Identification Rule: You have 45 days from the close of your relinquished property to identify potential replacement properties in writing to your Qualified Intermediary.
• 180-Day Exchange Period: You must close on the replacement property within 180 days of the sale of your relinquished property (or by your tax filing deadline, whichever comes first).

The Three Property Rule

You can identify up to 3 properties without restriction. If you want to identify more, the "200% rule" allows you to identify any number of properties as long as the combined value doesn't exceed 200% of the relinquished property value.

Avoid Boot

"Boot" is any non-like-kind property received in the exchange (cash, mortgage relief). Boot is taxable. To defer 100% of your gain, your replacement property must be equal or greater in value and you must reinvest all net proceeds.

Working with a Specialist

1031 exchanges require coordination between your broker, QI, attorney, and CPA. Samimi CRE Advisors has extensive experience helping LA County investors complete successful exchanges. Contact us to plan your next exchange.