1031 Exchange Guide for San Diego Investors | Nishant Sehgal

Investment strategies

1031
exchanges.

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Defer the tax. Keep your capital compounding.

Strategy 03

What it is.

Section 1031 of the tax code lets you sell an investment property and reinvest the proceeds into similar investment property while deferring capital gains taxes. It is a deferral, not forgiveness — but keeping six or seven figures invested instead of sending it to the IRS changes the math on everything that follows.

Exchanges live and die on timelines and paperwork. The strategy below is the framework; your qualified intermediary and CPA own the details of your specific exchange.

Honest accounting

The pros
and the cons.

Every strategy here can work. Every one can also disappoint you. Here is the unvarnished version.

Pros

  • Defer capital gains taxes and keep your full equity compounding
  • Consolidate several properties into one — or trade one into several
  • Move capital into stronger markets or better-performing assets
  • Can factor into long-term estate planning
  • Depreciation benefits can continue on the replacement property

Cons

  • The deadlines are unforgiving — miss one and the deferral is gone
  • You cannot touch the money, even briefly, at any point in the process
  • You must buy equal-or-greater value and reinvest all proceeds to fully defer the gain
  • Only investment or business property qualifies — your primary residence does not
  • Added complexity and cost: qualified intermediary fees, coordination, professional guidance
  • California adds its own reporting requirements on top of the federal rules

Before you commit

What you need
to know.

The 45-day rule: within 45 calendar days of selling, you must identify potential replacement properties in writing, following strict limits on how many you can name.

The 180-day rule: you must close on the replacement within 180 calendar days of the sale — or your tax return due date, whichever comes first.

A qualified intermediary must hold the funds between sale and purchase. If the money touches your hands, the exchange fails — this is called constructive receipt, and the rule has no exceptions worth testing.

“Like-kind” means real property for real property, held for investment or business use. Since 2018, personal property no longer qualifies.

Any cash you keep — or debt you shed without replacing — is taxable “boot.” To fully defer, reinvest everything and replace your debt level.

The exchange must be set up BEFORE you close the sale. You cannot decide to do a 1031 after the proceeds hit your account.

Reverse exchanges (buy the replacement first, sell later) exist, but they are more complex and more expensive — and the same clock still ticks.

Fit check

When this strategy
makes sense.

A 1031 fits investors sitting on large gains who want to stay invested — trading up, consolidating a scattered portfolio, or relocating capital into stronger assets.

It is a tax strategy in service of an investment decision, not the other way around. The replacement property has to stand on its own merits.

  • Your CPA and a qualified intermediary are engaged before you list — this is step zero, not step three
  • You have realistic replacement options identified early, including backups
  • The new property works as an investment on its own — the tax benefit does not rescue a bad deal

The playbook

How to plan
for it.

  1. Engage a qualified intermediary and your CPA before you list. The structure must exist before the sale closes.
  2. List and sell with the exchange paperwork in place from day one.
  3. Identify replacements in writing within 45 days — and name backup properties, because first choices fall through.
  4. Underwrite the replacements like any investment. A tax benefit never justifies overpaying.
  5. Close within 180 days and complete the exchange reporting with your tax advisors.

Underwrite it

The numbers
to watch.

Deferred gain

The tax you are not paying today — the capital that stays working instead.

Boot

Any cash kept or debt shed — the taxable part. The goal is zero.

Value test

Replacement value versus relinquished value — equal or greater keeps the deferral whole.

45 days

The identification deadline. Calendar days, no extensions, no excuses.

180 days

The closing deadline — or your tax return due date, whichever comes first.

Investor consultation

Planning an exchange? Start with the timeline.

Exchanges are won or lost on coordination. Talk through your sale, your identification strategy, and your closing logistics before the clock starts.

This is not financial, tax or legal advice. Consult your own advisors for those decisions.