The Basics

As detailed by IRS Code Section 1031, a real estate investor can sell one property and reinvest the proceeds into another of equal or greater value, and defer the tax liability generated from the sale. 

From the IRS Code: "No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like kind, which is to be held either for productive use in a trade or business or for investment."

There are two time limits to keep in mind. First, you have 45 calendar days from the date you sell the relinquished property to identify potential replacement properties.  Second, you have 180 calendar days from the date you sell the relinquished property to close on the replacement property(ies). 

Both deadlines require specific processes to be followed including not receiving the cash from the initial sale.  Engaging an experienced Qualified Intermediary prior to the closing of your initial (relinquished) property may help you avoid costly mistakes. Contact me for a list of Qualified Intermediaries.