1031 exchange basics for apartment investors

A 1031 exchange lets you sell an investment property and defer the capital gains tax by rolling the proceeds into a 'like-kind' replacement. For apartment investors, it's the engine behind trading up from a fourplex to a 20-unit to a 100-unit.

This is an overview, not tax advice — always work with a qualified intermediary and your CPA.

The deadlines that matter

• →45 days from closing to identify replacement properties (in writing).
• →180 days from closing to complete the purchase.
• →Proceeds must be held by a qualified intermediary — never touch them.

The rules of thumb

To fully defer, buy equal or greater in value and reinvest all the equity. Buy down and the difference ('boot') becomes taxable. Like-kind is broad for real estate — an apartment building can be exchanged for retail, land, or another apartment building.

Why it's a growth tool

Deferring tax keeps more capital working. Chained over several exchanges, that compounding is how modest portfolios become large ones. The hard part is lining up the replacement inside the 45-day window — which is exactly where having deals in the pipeline before you sell pays off.