1031 Exchange FAQ
Grow Your Real Estate Portfolio Tax-Deferred with a 1031 Exchange
A.If you're a real estate investor looking to sell a property and reinvest the proceeds without paying capital gains taxes right away, a 1031 Exchange may be one of the most powerful tools available to you.
At FT Realty we work with investors to navigate the 1031 Exchange process — helping you identify the right replacement properties, and maximize the long-term growth of your real estate portfolio.
Q: What Is a 1031 Exchange?
A:A 1031 Exchange — named after Section 1031 of the IRS Tax Code — allows real estate investors to defer capital gains taxes when selling an investment property, provided the proceeds are reinvested into a like-kind replacement property within a specified timeframe.
Instead of paying taxes on your profit at the time of sale, those funds are carried forward into your next investment — allowing your entire equity to keep working for you.
This strategy has been used for decades by savvy investors to:
• Build larger, more valuable portfolios over time
• Defer thousands — or hundreds of thousands — in capital gains taxes
• Upgrade from one property to multiple properties (or vice versa)
• Shift investment focus from one property type or market to another
• Pass wealth to heirs with significant tax advantages
Q: The Benefits of a 1031 Exchange
A: Why do sophisticated real estate investors consistently use the 1031 Exchange strategy? The benefits are substantial:
💰 Tax Deferral — Postpone capital gains taxes (which can be 15%–20% federally, plus state taxes) indefinitely, keeping more money invested and compounding.
📈 Portfolio Growth — Leverage your full equity — rather than a post-tax remainder — to acquire larger or more valuable properties.
🔄 Portfolio Diversification — Exchange out of one property type or geographic market and into another to balance or rebalance your investment strategy.
🏘️ Consolidation or Expansion — Sell multiple properties and exchange into one, or sell one property and exchange into several — depending on your goals.
🎁 Generational Wealth Transfer — When investment properties are passed to heirs, the cost basis is stepped up, potentially eliminating the deferred tax liability entirely.
🧘 Passive Income Strategy — Exchange active management properties (like multi-family units) for more passive investments like net lease commercial properties or DSTs (Delaware Statutory Trusts).
Can I live in my replacement property after the exchange?
A: Not immediately. The IRS requires that replacement properties be held for investment purposes. However, there are strategies — such as converting a rental to a primary residence after sufficient time — that can be planned for with proper guidance.
Q: What happens to the deferred taxes eventually?
A: If you sell the replacement property without doing another 1031 Exchange, the deferred taxes become due at that time. However, if you continue exchanging or hold the property until death, your heirs may receive a stepped-up cost basis — potentially eliminating the tax liability entirely.
Q: : Do I need a Qualified Intermediary?
A: Yes. The IRS requires a Qualified Intermediary to facilitate a proper 1031 Exchange.
Q: Can I exchange into a property in a different state?
A: Yes. Unlike-kind requirements do not restrict exchanges to the same state or market. You can sell a property in one state and purchase a replacement property in any state.
🏡 Need Expert Guidance for Your 1031 Exchange?
