1031 Exchange Services – the Reese CPA Firm.
CPA-Led Like-Kind Exchange Planning & Tax Deferral for Real Estate Owners
A 1031 exchange (also called a like-kind exchange) allows real estate investors and business owners to defer capital gains tax, depreciation recapture, and Net Investment Income Tax (NIIT) by reinvesting proceeds from the sale of qualifying real property into new qualifying real property.
Our CPA-led 1031 exchange services help ensure your transaction is properly structured, fully compliant, and strategically optimized under Internal Revenue Code §1031 and guidance from the Internal Revenue Service.
Important: 1031 exchanges are highly technical and time-sensitive. Errors or missed deadlines can permanently disqualify tax deferral.
What Is a 1031 Exchange?
A 1031 exchange allows you to sell investment or business real estate and defer taxes by purchasing qualifying replacement property within strict IRS deadlines. When properly executed, a 1031 exchange can defer:
- Federal capital gains tax
- State capital gains tax (where applicable)
- Depreciation recapture tax
- Net Investment Income Tax (NIIT)
This strategy is commonly used to:
- Preserve capital for reinvestment
- Increase purchasing power
- Reposition real estate portfolios
- Improve long-term after-tax returns
1031 Exchange Eligibility Requirements
Property Use Requirement
Both the relinquished property and replacement property must be:
- Held for investment, or
- Used in a trade or business
• Rental properties • Commercial real estate • Industrial, retail, office, or mixed-use • Raw land held for investment • Primary residences • Personal-use property
Like-Kind Property Rules
“Like-kind” refers to the nature of the property, not quality or class.
Examples of qualifying exchanges:
- Apartment building ? retail center
- Office building ? warehouse
- Vacant land ? rental property
U.S. real estate must be exchanged for other U.S. real estate.
Critical 1031 Exchange Deadlines
45-Day Identification Rule
Within 45 calendar days of selling your property, you must:
- Identify replacement property in writing
- Deliver identification to a Qualified Intermediary (QI)
- Follow one of the IRS identification rules
Common identification methods:
- 3-Property Rule
- 200% Rule
- 95% Rule
Deadlines are strict — no extensions.
180-Day Exchange Completion Rule
- Replacement property must be acquired within 180 days of sale
- Deadline includes the 45-day identification period
- Exchange must close by the earlier of:
- 180 days after sale, or
- Tax return due date (extensions often required)
Qualified Intermediary (QI) Requirement
A Qualified Intermediary is mandatory for most 1031 exchanges.
- Sale proceeds cannot be received by the taxpayer
- Funds must be held in escrow by the QI
- Exchange documentation must be executed correctly
? CPAs, attorneys, real estate agents, and related parties generally cannot act as the QI
We coordinate directly with reputable QIs to ensure compliance.
Avoiding Taxable “Boot”
To fully defer taxes:
- Replacement property value must be equal or greater
- All net sale proceeds must be reinvested
- Debt must be replaced with equal or greater debt (or cash)
Boot (taxable income) occurs when:
- Cash is received
- Debt is reduced without replacement
- Certain non-exchange expenses are paid from proceeds
Advanced 1031 Exchange Strategies
We provide planning support for:
- Delayed Exchanges (most common)
- Reverse Exchanges (buy first, sell later)
- Improvement / Construction Exchanges
- Multi-property and portfolio exchanges
These structures involve additional rules and require CPA-level planning.
State Tax & Compliance Considerations
- Many states follow federal 1031 rules
- Some states require ongoing tracking if property moves out of state
- Incorrect reporting can trigger unexpected state tax liabilities
We ensure accurate federal and state filings, including Form 8824 and supporting schedules.
Why Use a CPA for 1031 Exchange Planning?
Most errors in 1031 exchanges occur due to lack of tax coordination.
CPA oversight provides:
- Eligibility confirmation before sale
- Deadline and documentation compliance
- Basis and depreciation tracking
- Depreciation recapture deferral
- Integration with cost segregation strategies
- Audit-ready reporting
A 1031 exchange should never be executed without tax planning before the sale closes.
Strategic Planning Tip
A 1031 exchange is often paired with cost segregation on the replacement property to:
- Continue deferring capital gains, and
- Accelerate depreciation on newly acquired assets
This combination can significantly improve cash flow and after-tax returns.
Schedule a 1031 Exchange Planning Review
If you are considering selling investment or business real estate, planning must occur before closing.