7 Smart Ways To Use A 1031 Exchange In 2026: Your Complete Tax Deferral Guide

7 Smart Ways To Use A 1031 Exchange In 2026: Your Complete Tax Deferral Guide

What Is A 1031 Exchange You can sell an investment property and use the money to buy another property of the same kind through a 1031 exchange. This is named after Section 1031 of the Internal Revenue Code. The important word is “defer” instead of “eliminate.” You’re just putting off paying the tax bill, not getting rid of it entirely.

What Kinds Of Properties To Use For A 1031 Exchange In 2026? Most people aren’t familiar with the actual meaning of the word “like-kind.” It means more than you think. For instance, you don’t have to trade one apartment building for another. IPX1031’s 2025 trends report says that most real estate held for business or investment purposes is like-kind property. You could trade a single-family rental home for a multifamily apartment complex, a retail storefront for industrial warehouse space, vacant land for a developed commercial property, etc.

The 1031 Exchange Timeline The timeline of a 1031 Exchange in California is the part that even experienced investors have trouble with. These rules aren’t flexible. The IRS has set up strict deadlines. If you miss them, you’ll lose your tax deferral completely. For identification, you have 45 days, while for buying, you get 180 days.

How To Reset Depreciation On Your Investment Property A 1031 Exchange in California can help you reset the clock on depreciation, which is something many investors don’t know. You can use depreciate residential rental property over 27.5 years and commercial property over 39 years, according to the IRS. If you’ve owned a property for a long time, your annual depreciation deduction may have gone down or even gone away completely.

Turning A Vacation Home Into An Investment Property This one needs a lot of thought, but it’s eventually becoming more and more possible. The IRS has certain rules for people who want to turn their vacation home into an investment property and then sell it. IPX1031’s strategic home-buying guide says that to be able to do a 1031 exchange on a vacation home, you have to own it for at least two years, rent it out at market rate for at least 14 days a year for the last two years, and use it for personal purposes for no more than 14 days or 10% of the rental period each year, whichever is greater.

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