How does a 1031 exchange work in California — and what are the deadlines?
A 1031 exchange lets you sell investment real estate and defer capital-gains tax by reinvesting the proceeds into like-kind property. Two clocks start the day your sale closes: 45 calendar days to identify replacement property in writing, and 180 calendar days to close on it. Both counts include weekends and holidays and have no extensions. Funds must sit with a qualified intermediary — touch the money and the exchange dies.
The rules that trip people up.
To fully defer tax you must buy equal or greater value, reinvest all net proceeds, and replace the debt you paid off (or add cash). Identification follows one of three rules — most investors use the three-property rule. California adds a wrinkle: a "claw-back" — if you exchange California property for out-of-state property, the state tracks the deferred gain (Form 3840, annually) and taxes it when you eventually sell for cash.
Where exchanges actually fail.
Exchanges rarely die on paperwork — they die on day 44 with no viable building identified. The fix is starting the replacement search before you list, not after you close. Because I run both sides — the sale and the replacement — my sellers walk into escrow with an identification list of real buildings, often off-market, already vetted against their debt and income targets.
Can I 1031 from an apartment building into land?
Yes. "Like-kind" for real estate is broad: apartments into land, land into retail, one building into several. Both sides must be held for investment or business use.
What happens if I miss the 45-day deadline?
The exchange fails and the sale becomes taxable. There are no extensions except rare federally-declared disaster relief. Plan the replacement before you sell.
What is a reverse exchange?
Buying the replacement before selling the relinquished property, using an accommodation titleholder. More expensive and more structure, but it removes the 45-day panic.
SHAYA LOWENSTEIN · LYON STAHL INVESTMENT REAL ESTATE · DRE #01942326 · (323) 944-2221