The 1031 Exchange Roadmap: First Questions to Ask

The most expensive 1031 exchange mistakes happen before the property is even listed. By the time a seller realizes they needed an intermediary, it is often too late to fix. So here are the first questions I ask when an investor mentions an exchange.

What a 1031 Exchange Is, in Plain Terms

Section 1031 of the federal tax code allows an investor to defer capital gains tax when selling an investment property and reinvesting the proceeds into another qualifying property. The key word is defer. The tax is postponed, not erased, and the rules around it are technical.

I am a broker, not a tax advisor. What follows is a roadmap of conversations to have, and your CPA and attorney should confirm every point against your facts and current law.

Question One: Does My Property Qualify?

Exchanges generally apply to property held for investment or business use, not to a home you live in as your main residence or to property held mainly for resale. How long you have held it and how you have used it can matter. Ask your CPA to review your history with the property before you plan anything around an exchange.

Question Two: Who Will Hold the Proceeds?

This is the one that catches people. In a standard exchange, you generally cannot take possession of the sale proceeds yourself. A qualified intermediary holds the funds and handles the exchange paperwork. You need to line one up before closing on the sale, and you should vet who they are, how they hold funds, and what they charge.

Question Three: What Are the Deadlines?

Exchanges run on strict federal timelines, including a short window to identify replacement property and a limited window to complete the purchase. These deadlines are rigid, and missing one can disqualify the exchange. Confirm the exact periods and how they are counted with your intermediary and tax advisor, and plan your search before you sell, not after.

Question Four: What Am I Buying Next?

Having a replacement target in mind early changes everything. As an example archetype, an investor might trade out of a smaller rental and into a multi-tenant retail plaza through KC Investment Corp, with the tax deferral being one part of a broader acquisition plan. That is an illustration, not a promise of any outcome. Whether the replacement property is a good investment should still be judged on its own: income, leases, condition, and price.

Do not let the tax tail wag the investment dog. A bad property purchased to preserve a deferral is still a bad property.

Question Five: Will the Debt and Value Work Out?

Your tax advisor will explain how the value and the loan on the replacement property affect the deferral. From my side, I make sure the financing is lined up early. Our in-house KC Mortgage Desk can pre-review tax returns, bank statements, and appraisal tolerances before you are under contract, so a lender surprise does not collide with an exchange deadline. Loan terms and requirements change, so verify them with a lender.

Question Six: Can the Closing Keep Pace?

Because the timelines are fixed, a slow escrow is a real risk. Industry closings through outside escrow companies often take 30 to 45 days. With Socal Trusted Escrow working inside our unified model, we coordinate toward a 14 to 21 day close. That is a goal that depends on the file and all the other parties, and not a guarantee.

A Short Checklist to Start

• Talk to your CPA before you list, not after.
• Interview a qualified intermediary and confirm the process in writing.
• Start looking at replacement property early.
• Get your financing reviewed before you make an offer.
• Keep records of the property's history, improvements, and use.

Next Step

If you are considering an exchange, use the Download 2026 Playbook button on this page for a planning checklist you can share with your CPA. Then reach out, and we can talk through how the replacement search fits your timeline.

Educational information only; not legal, tax, or lending advice. Consult a CPA, attorney, or lender about your situation. Rates, programs, and rules change.

Charles Nguyen, Licensed Broker, DRE #01846114