1031 Exchanges: Trading Up Without Paying Tax Now

Section 1031 of the tax code lets an investor sell one investment property and buy another "like-kind" property without paying capital gains tax at the time of sale. The tax isn't erased — it's deferred into the new property. For many Southern Maine owners, it's how a duplex becomes a fourplex, then a small apartment building.

The two deadlines that matter

From the day your sale closes, you have 45 days to identify in writing the replacement property (or properties) you might buy, and 180 days total to close on it. These dates don't stretch for weekends or holidays, so start looking before you list.

You can't touch the money

Sale proceeds must go to a qualified intermediary, not to you. If the cash lands in your account, the exchange generally fails. Line up the intermediary before closing.

Trade up, not down

To defer all of the tax, the general rule of thumb is to buy a property of equal or greater value and reinvest all the equity. Cash you take out, or debt you pay down without replacing, can become taxable.

Talk to the pros first

This is a general overview, not tax advice. Talk with a CPA and a qualified intermediary before you sell. Then call Anthony to line up replacement properties that fit the timeline.