Market Update – June 2026
Understanding a 1031 Tax-Free Exchange
Normally, I'd be showing you our Dunes market numbers, but unfortunately our local MLS is down. Rather than sharing information that's incomplete or based on too much speculation, I'm going to wait until the data is accurate and share it with you then.
In the meantime, I wanted to talk about 1031 tax-free exchanges and how they work.
I get a lot of questions about these, and while we don't do them every day, we do enough that we've gained a fair amount of experience.
The first piece of advice I always give is this:
Talk to your attorney or your accountant.
You'll also need to hire what's called a qualified intermediary. This is the person who holds the funds between the sale of Property A and the purchase of Property B.
Here's a general overview of how a 1031 exchange works.
Let's say you purchased an investment property for $500,000. Whether you bought it last week or ten years ago doesn't really matter. Now let's say that property has appreciated and is worth $1 million.
Instead of selling the property and immediately paying taxes on the capital gain, a 1031 exchange allows you to defer those taxes by purchasing another qualifying investment property.
When you sell your property, you'll need to include language in the purchase agreement stating that you're completing a 1031 tax-free exchange at no cost to the buyer. This simply puts the transaction on record. Your attorney may recommend specific wording, so be sure to follow their advice.
Another important rule is that you cannot take possession of the sale proceeds.
When your property closes, the closing attorney sends the funds directly to your qualified intermediary. That intermediary must be properly qualified and authorized to handle these transactions. They hold the money until you're ready to purchase your replacement property.
When it's time to buy, the intermediary transfers the funds directly for that purchase.
If you personally receive or touch the money, you may lose the tax benefits of the exchange.
There are also important deadlines.
After selling your property, you have 45 days to identify your replacement property or properties. There are a few different identification rules, so this is another reason to work closely with your intermediary.
From the date your original property closes, you have 180 days to complete the purchase of your replacement property.
If you miss that 180-day deadline, you generally lose the tax-deferred benefits of the 1031 exchange.
That's the basic process.
The biggest takeaway is simple:
Bring experienced professionals into the transaction. Don't try to handle it yourself. Work with a qualified intermediary, your accountant, and your closing attorney to make sure everything is done correctly.
Thanks for watching.
I'm Jim Allison with Dunes Realty. Have a great day.
