I’m not a tax advisor. Let me just get that out of the way upfront. But I’ve been involved in enough 1031 exchanges from the buy side and the sell side that I can walk you through how they work and what to watch out for.
Because honestly, this comes up in almost every conversation I have with a seller. “Can I 1031 this?” Short answer: probably yes. Longer answer: it depends on a few things.
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Know Your Replacement Strategy Upfront: Before you sell, have a target in mind for replacement. Starting a search after closing is cutting it close on the 45-day clock. -
Financing Is Critical: Get your replacement financing pre-approved before closing on the sale. You can’t wait 60+ days for underwriting during a 180-day window. -
Like-Kind Confirmation: Confirm with a tax advisor that your replacement property qualifies. Industrial for retail works. But crypto and non-real estate do not. -
Qualified Intermediary Selection: Choose your intermediary before you close on sale. They handle all timing and compliance. -
Multiple Contingencies Are Possible: You can identify up to three replacement properties (45-day window). Identify more than one to reduce risk.
The basics
A 1031 exchange lets you sell an investment property and defer the capital gains tax by reinvesting the proceeds into another “like-kind” property. Like-kind in real estate is pretty broad. You can sell an industrial building and buy apartments. You can sell a strip center and buy land. You can sell a flex park and buy a self-storage facility. All of that counts.
The 1031 timeline trap
You sell a property on Day 1. You have 45 days to identify replacement properties (written formal identification required). Then you have 135 days left (of the 180-day window) to actually close on replacement. If your replacement property needs financing underwriting, title work, and inspection, 135 days is tight. Owners who start their replacement search after closing on the sale are gambling with tight timelines. The best 1031 exchanges are planned 3-6 months in advance with identified targets and financing pre-approval.
The key rules:
- You have 45 days from closing to identify your replacement property (or properties)
- You have 180 days from closing to actually close on the replacement
- The money has to go through a qualified intermediary. You can’t touch the cash. If it hits your bank account, the exchange is blown
- The replacement property has to be equal or greater in value to get a full deferral
Where people mess up
The 45-day identification window. This is the one that kills deals. You sell your building, start looking for replacements, and suddenly you’ve got 30 days left and nothing under contract. Panic sets in. I’ve seen people overpay for their replacement property just to hit the deadline. That’s not a good outcome.
My advice: start looking for your replacement property before you even close on the sale. I know that sounds backwards but it’s way better than scrambling.
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The other common mistake: not using a qualified intermediary from the start. You can’t set this up after the fact. The QI needs to be in place before your sale closes. Find one early. They usually charge $800-1,500 for the service.
Can you 1031 into what I’m buying?
Sometimes sellers ask if they can sell their building to me and then 1031 into something else I own. That gets complicated but it’s not impossible. I’ve done a couple of these where the timing worked out. More commonly, the seller sells to me and uses the proceeds to buy something completely unrelated. Apartments, a NNN Walgreens, DST shares, whatever fits their goals.
The important thing is that selling to me doesn’t prevent you from doing a 1031. I buy with cash and close quickly, which actually makes the exchange easier because you don’t have a buyer with financing contingencies that might delay the close and mess up your timeline.
If you own commercial property in Charlotte, Charleston, or anywhere in the Carolinas and you’re thinking about selling with a 1031, let’s talk. I’ll connect you with a good QI if you don’t already have one.
Seller takeaway
If you’re selling a commercial property and considering a 1031 exchange, timing is everything. Call Roth Capital at 704-600-3839 to discuss whether your replacement strategy fits the 45/180-day windows and whether Roth Capital properties might work as replacement properties.
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