CPA-led 1031 exchange guide
1031 Exchange Replacement Property
Replacement property is what you buy with your exchange proceeds. Picking the right replacement — and structuring the purchase correctly — is what determines whether your deferral holds and how clean your tax outcome looks.
Like-kind for real property
Any U.S. real property held for investment or business use is like-kind to any other U.S. real property held for the same purpose. Asset class, geography, and improvement level can all change — what matters is the holding intent.
Value, equity, and debt matching
To defer the full gain, the replacement must be worth at least as much as the relinquished, you must reinvest all the net equity, and you must replace any debt that was paid off.
Multiple replacements
You can split a single sale into multiple replacement properties, subject to the identification rules. Common with diversification or downsizing strategies.
Common pitfalls
- Buying for less than the relinquished sale price (creates boot)
- Not replacing paid-off debt (mortgage boot)
- Vague identification descriptions
- Closing past Day 180
Frequently Asked Questions
Can the replacement property be in a different state?
Yes. Any U.S. state qualifies. Be aware of state-specific filing requirements where the relinquished or replacement property sits.
Can I improve the replacement property with exchange funds?
Only through a structured improvement (construction) exchange completed within Day 180. Standard delayed exchanges don't allow post-closing improvements with exchange funds.