1031 Deferred Tax Exchanges
Troy Stafford
Minnesota Land Specialist | CPA
When it comes to selling land or investment property, taxes can take a serious bite out of your gains. But what if you could defer those taxes—and reinvest your full equity into another property? That’s exactly what a 1031 exchange allows you to do.
Used strategically, a 1031 deferred tax exchange helps landowners, farmers, and investors preserve wealth, scale their portfolios, and transition into properties that better fit their long-term goals—all while deferring capital gains tax. In this blog, we’ll break down how 1031 exchanges work, when to consider one, and how to avoid common pitfalls.
What exactly a 1031 deferred tax exchange?
A 1031 deferred exchange, also known as a like-kind exchange, is a tax-deferred transaction that allows investors to defer or delay, ideally ultimately eliminate, capital gains taxes on the sale of an investment property. In essence the transaction allows the investor to “trade” out their investment property if it is held for productive (business) use or investment purposes
What are the specific requirements of the program?
- Target property must be held for productive (business) use or investment purposes
- Intent to hold is critical – if held to “flip” or resell, the IRS may disallow
- QI must hold funds during process with no taxpayer access as that my disqualify transaction from the deferred tax exchange
- Same taxpayer requirements – owner of relinquished and target properties must match
- Disregarded entities may be exempt from this requirement
Are there timing restrictions that need to be considered?
- Required to identify replacement properties within 45 day of closing of relinquished
- Identification must be in writing and clear – Tax ID and legal description ideal
- Taxpayer may utilize the 3 property rule or 200% rule
- 3 property – any 3 properties regardless of price
- 200% – 4 or more properties with a combined value of <= 200% relinquished value
- Closing on target property must occur within 180 days of closing of relinquished
What is the ultimate goal of doing an exchange:
- The end goal is to defer taxes to a later date or ultimately eliminate them by virtue of a “stepped-up” basis
- Stepped up basis is not available to irrevocable trusts
What are the benefits in working with an experienced exchange expert?
- Intimate knowledge of the IRS requirements with numerous transactions conducted
- Can handle the process start to finish and coordinate the parties
- Access to an agent with an active CPA license
- Vast network of QI’s and Experienced Attorneys
- Investment alternatives available
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- Delaware Statuary Trust
- Reverse 1031 Exchanges
- Deferred Sales Trust
Disclaimer: Please note the above information is meant a guideline and should not be considered tax or legal advice and since each transaction is unique, you are strongly encouraged to contact us in addition to reaching out to your tax accountant or attorney for information specific to your situation!
Do you want to learn more?
If you’re considering buying, selling, or managing land, reach out to a local High Point Land Company Agent today. For more questions regarding land real estate, visit our YouTube Knowledge Center.
Living in the Dodge County area all his life and working on two local dairy farms throughout high school and college gave Troy immense respect for farmers. After seven years in public accounting, Troy has worked in various private industries in both Controller and CFO capacities, including 10+ years working for two different farm supply, producer owned, cooperatives. Mr. Stafford also holds an active CPA license and has an MBA degree. Contact Troy at 507-259-3047 or email Troy@highpointlandcompany.com.