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    1031 Exchange in Commercial Real Estate: The Definitive Guide

    Defer capital gains, compound wealth, and reposition your portfolio - without writing a check to the IRS.

    A Section 1031 like-kind exchange lets a commercial real estate investor sell one investment property and reinvest the proceeds into another 'like-kind' investment property while deferring federal capital gains taxes. Executed correctly, a 1031 can defer six- and seven-figure tax bills indefinitely - and reset your basis stepped up at death. This guide covers every rule, deadline, and pitfall.

    45 days
    Identification Window
    180 days
    Closing Window
    up to 20%
    Federal LTCG Rate
    0%
    TX State Income Tax

    The 1031 Exchange Rules in Plain English

    • Both the sold ('relinquished') and purchased ('replacement') properties must be held for investment or productive use in a trade or business - not personal residences.
    • Both must be 'like-kind' - nearly all US investment real estate qualifies (retail, office, industrial, land, multifamily are all like-kind to each other).
    • You have 45 days from close of the relinquished property to identify replacement candidates in writing.
    • You have 180 days from close of the relinquished property to close on one or more identified replacements.
    • You cannot touch the proceeds. Sale funds go to a Qualified Intermediary (QI) who holds and disburses them.
    • You must reinvest all cash equity and replace all debt (or add cash) to fully defer. Any 'boot' - cash or debt reduction - is taxable.

    The 45/180 Day Timeline (Critical)

    Day 0: Close on relinquished property. QI receives net proceeds.

    Day 1–45: Identify replacement property(ies) in writing to the QI. Standard rules: identify up to 3 properties of any value (3-Property Rule), or any number of properties whose combined value doesn't exceed 200% of relinquished value (200% Rule).

    Day 46–180: Close on one or more identified replacements. Deadlines are absolute - no extensions for weekends, holidays, or hurricanes.

    Miss either deadline by one day and the entire exchange fails - every dollar of gain becomes taxable in the year of sale.

    Types of 1031 Exchanges

    • Delayed (Forward) Exchange - sell first, buy within 180 days. ~90% of exchanges.
    • Reverse Exchange - buy replacement first, sell relinquished within 180 days. More expensive and requires an Exchange Accommodation Titleholder (EAT).
    • Build-to-Suit (Improvement) Exchange - use exchange proceeds to fund improvements on replacement property before it is deeded to you.
    • Simultaneous Exchange - both closings same day. Rare in modern practice.

    Why DFW Is a Prime 1031 Replacement Market

    Texas has no state income tax, insulating investors from the state-level capital gains hit that would erode gains in California, New York, or Illinois. DFW's population and job growth support long-term rent growth in retail, industrial, and multifamily. Cap rates in Southlake and North Tarrant County have compressed on the strength of household income, school district rank, and airport proximity - creating both appreciation and NNN yield.

    Common 1031 replacement plays in DFW: net-leased retail pads (5.0–6.5% caps, passive), small-bay industrial (5.5–7.0%, high demand), and grocery-anchored strip centers.

    Frequently Asked Questions

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    DFW Commercial Real Estate Guide
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    Have a real deal to talk through?

    Daniel Weber offers free, no-obligation strategy conversations for tenants, landlords, and investors across Southlake and DFW.

    (817) 559-1235Email Daniel