What Is a 1031 Exchange in Real Estate?
A 1031 exchange lets real estate investors defer capital gains taxes when selling one property and reinvesting the proceeds into another “like-kind” property. While not common for FSBO sellers, understanding this tax tool is valuable for investment property owners.
✅ How a 1031 Exchange Works
- Like-kind property: both properties must be held for investment or business purposes.
- Timeline rules: 45 days to identify a replacement property, 180 days to close.
- Qualified intermediary: funds must be handled by a third-party, not the seller directly.
- Tax deferral: capital gains are deferred, not eliminated, until the property is eventually sold without another exchange.
🌐 Why the 1031 Exchange Matters
For investors, a 1031 exchange can preserve equity and accelerate portfolio growth by deferring taxes. FSBO sellers should know the basics because some buyers may use a 1031 exchange when purchasing your property.
- Encourages reinvestment into real estate
- Helps buyers expand or upgrade properties without immediate tax liability
- Common in rental, commercial, and land deals
📍 1031 Exchanges and FSBO Sellers
While most FSBO home sales don’t involve 1031 exchanges, investors selling rental properties by owner may use this strategy. Be prepared for questions from buyers or closing agents if an exchange is part of the deal.