Selling a Rental to Buy Another: How a 1031 Exchange Works

Owner’s guide › Compare

Like-Kind Exchanges for Rental Owners

A way to put off the tax on a sale, with strict deadlines and no second chances

The short answer: section 1031 of the Internal Revenue Code lets you postpone tax on the gain from selling real property you hold for business or investment, such as a rental home, if you exchange it for other like-kind real property. The tax is deferred, not forgiven. In the usual deferred exchange you must identify the replacement property in writing within 45 days after you transfer the old one, and receive it within 180 days or by your tax return’s due date with extensions, whichever comes first. A deferred exchange generally runs through a qualified intermediary, who cannot be your own agent or a relative. Any cash or other property you take out of the exchange is taxable. Plan it with a CPA before the sale closes; once the deadlines pass, they cannot be fixed.

Deferred, Not Tax-Free

If you exchange business or investment real property solely for business or investment real property of a like kind, no gain or loss is recognised at the time; Form 8824 then figures the amount of gain deferred and your basis in the property you receive (Instructions for Form 8824 (2025)). If, as part of the exchange, you also receive money or other property that is not like-kind, you must recognise gain to that extent, and you cannot recognise a loss (IRS, Like-Kind Exchanges: Real Estate Tax Tips).

What Qualifies

• Real property only. Under the Tax Cuts and Jobs Act, section 1031 applies only to exchanges of real property, not personal or intangible property; from 1 January 2018, machinery, equipment and vehicles generally no longer qualify.
• Held for business or investment. Both the property you give up and the one you receive must be real property used in a business or held as an investment. Real property held primarily for sale still does not qualify.
• Not your own home. Section 1031 does not apply if the property you gave up was used solely as your personal residence at the time of the exchange. If it was partly your main home and partly a rental, the Form 8824 instructions split the two parts.
• Like-kind is broad for real estate. Real properties are generally like-kind to each other whether improved or not; the IRS gives an apartment building for another apartment building as an example. Property in the United States is not like-kind to property abroad.

The Two Deadlines

Both run from the day you transfer the property you are giving up (Instructions for Form 8824 (2025)):

• 45 days to identify. The replacement property must be designated in writing, in a document you sign or an agreement signed by all parties, and described clearly, for example by legal description or street address. Within the 45 days, the signed document has to be sent to the person obliged to transfer the replacement property to you, or to another person involved in the exchange who is not a disqualified person, or all parties sign a written agreement naming the property.
• 180 days to receive it, or by the due date (including extensions) of your tax return for the year you transferred the old property, whichever is earlier. Because the earlier date applies, a sale late in the year can leave less than 180 days unless the return is extended; ask your CPA.

The Qualified Intermediary

If you make a deferred exchange using a qualified intermediary, the transfer of the property you give up and the receipt of the like-kind property is treated as a like-kind exchange. Related parties and your agents are not eligible to be the intermediary; the instructions call them “disqualified persons”, and generally that means your agent at the time of the transaction or a person related to you. If you fail to meet the deadlines because of the intermediary, the transaction will not qualify as a deferred exchange and any gain may be taxable (Form 8824 instructions). Choose the intermediary with care and before the sale closes.

Exchanges With Relatives

Special rules apply to exchanges with related parties, directly or through an intermediary. Related parties include your spouse, child, grandchild, parent, grandparent, brother and sister, and related companies, trusts and estates. An exchange structured to avoid the related party rules is not a like-kind exchange and is reported as a sale (Form 8824 instructions, line 7; section 1031(f)).

Reporting It

If you transferred property in a like-kind exchange during the tax year, you file Form 8824 with your tax return for that year. After an exchange with a related party, you also file it for the 2 following years.

Where This Fits for a Las Vegas Owner

• Tired of one rental, but not of owning rentals. An exchange can move the investment into a different property, area or size of building without paying the tax on the sale now.
• Ready to stop owning rentals. Then an exchange does not fit, because you have to buy replacement investment property. Compare selling outright: see selling a rental with a tenant in it.
• The home was once where you lived. If you owned and used it as your main home for at least 2 years in total during the 5 years ending on the date of the exchange, the Form 8824 instructions say the home-sale exclusion (section 121) may also apply; see rent it out or sell it.

None of this is tax advice. Exchanges have more rules than this page covers, and the right answer depends on your basis, depreciation, debt and plans. Talk to a CPA, and choose the intermediary, before you sign a sale contract.

Next Step

If the replacement property will be a rental in the Las Vegas valley, see our property management services or call 702.278.4781. If you are still deciding whether to sell at all, get a free rental analysis of the home you own now.

Tax rules on this page were read on 11 November 2026 from IRS.gov: Like-Kind Exchanges, Real Estate Tax Tips (page updated 1 May 2026) and the 2025 Instructions for Form 8824. This is general information, not tax advice.