LaviCPA works with Los Angeles real estate investors who are selling and buying under IRC Section 1031. Shawn Lavi, CPA and Elias Lavi, CPA lead the tax side: modeling outcomes before you list, reviewing identification choices, and lining up the return presentation so the deferral you expected is the deferral you report. We coordinate with your QI, broker, and closing team; we do not replace the QI.
If you already have a sale under contract, or you are deciding between a taxable sale and an exchange, book a consultation. Bring the purchase history, depreciation schedules, and any draft closing statements. Early review beats fixing a broken exchange after the 45-day clock has started. Investors outside Los Angeles who want a scoped, remote plan (not a QI engagement) can use the nationwide 1031 Exchange Tax Plan.
How a 1031 exchange works
Section 1031 of the Internal Revenue Code allows you to exchange real property held for investment or productive use for other real property of like kind and defer the gain. After the Tax Cuts and Jobs Act, like-kind exchange is available only for real property — not personal property, not equipment, not goodwill. For most real estate investors, that is fine: one building for another building.
The deferral is not permanent. It rolls the gain into the replacement property, reducing your basis there. When you eventually sell for cash, the deferred gain is recognized. Many investors string exchanges together over decades, then pass highly appreciated property to heirs. If the property is held until death and qualifies for a Section 1014 basis adjustment, heirs generally receive a basis tied to fair market value. That may eliminate much or all of the built-in income-tax gain, although ownership structure, estate inclusion, and statutory exceptions must be reviewed.
The deadlines: 45 days and 180 days
Two clocks start the day you close the sale of your relinquished property:
- 45 days to identify replacement property. You must deliver a written, signed identification to your qualified intermediary within 45 days.
- 180 days to close on the replacement property. The 180-day period includes the 45-day identification period — you do not get 45 + 180. The 180-day period is also cut short by your tax return due date unless you extend.
Both deadlines are calendar days. Weekends and ordinary holidays do not extend these periods. Limited relief may apply in qualifying federally declared disasters. If day 45 falls on a Sunday, the deadline is still Sunday.
The identification rules
You can identify replacement property under one of three rules:
- Three-property rule: Identify up to three properties, regardless of value.
- 200% rule: Identify any number of properties as long as their total value does not exceed 200% of the relinquished property's value.
- 95% rule: Identify any number of properties of any value, but you must acquire at least 95% of the total value identified.
Most investors use the three-property rule. The 200% rule is useful when you need flexibility on price. The 95% rule is rarely used because it requires you to actually close on nearly everything you identify.
Boot: when you pay tax inside an exchange
"Boot" is any non-like-kind property you receive in the exchange — cash, debt relief, or personal property. You are taxed on boot to the extent of gain realized. If you sell for $1M with a $400K basis and $600K gain, and you receive $50K of cash at closing (the rest reinvested), you pay tax on $50K and defer the remaining $550K. Debt relief works similarly: if your relinquished property had a $300K mortgage and your replacement has a $200K mortgage, the $100K difference is boot. If a cost segregation study split out Section 1245 property, some depreciation recapture can be taxed even in a full exchange unless the replacement property has enough Section 1245 property.
California conformity
California conforms to Section 1031 for real property exchanges, which means the deferral applies on your California return as well as your federal return. From 2019 through 2024, California let individuals under $250,000 of AGI ($500,000 joint or head of household) exchange personal property. For tax years beginning in 2025, California is real-property-only too. Fixtures and equipment in a transaction are generally boot on both returns. We track the California basis separately so the deferred gain is correctly reported when the chain of exchanges ends.
Reverse exchanges and build-to-suit
In a standard (forward) exchange, you sell first and buy second. In a reverse exchange, you acquire the replacement property first, then sell the relinquished property. The IRS allows this through Revenue Procedure 2000-37, but the qualified intermediary (or an exchange accommodation titleholder) must hold title to one of the properties — you cannot own both simultaneously. Reverse exchanges are more complex and more expensive, but they let you move on a desirable replacement property before your sale is ready.
A build-to-suit (or construction) exchange lets you use exchange proceeds to improve replacement property — new construction, renovations, or land improvements. The 180-day deadline still applies, so the construction must be substantially complete by day 180. This is powerful for investors who want to exchange into a property that needs work, but it requires tight coordination with the contractor and the intermediary.
Delaware Statutory Trusts (DSTs) as replacement property
A DST is a fractional ownership interest in a single large property, structured so it qualifies as like-kind replacement property. DSTs solve two common problems: investors who cannot find a suitable property within 45 days, and investors who want to go passive (no management) after a sale. The trade-off is that you give up control — a DST is a security, and you cannot make operating decisions. For the right investor, a DST is a legitimate exit from active management while preserving the deferral.
The mistakes that break an exchange
- Touching the cash. You cannot receive the proceeds, even briefly. They must go to a qualified intermediary. If your closing agent wires them to you "just for a day," the exchange is dead.
- Missing the 45-day identification. There is no ordinary extension; limited relief applies only in qualifying federally declared disasters. If you identify on day 46, it generally does not count.
- Identifying the wrong property. The legal description on the identification must match the property you actually close on. Use the assessor's parcel number and the legal description from the deed to avoid ambiguity.
- Not reinvesting all proceeds and all debt. To defer all gain, you must reinvest all cash and replace all debt (or add equivalent cash).
How we help
We are not your qualified intermediary. That is a separate, independent party. We handle the tax side: we review your identification with you, keep the 45- and 180-day dates in front of you, roll basis forward on your federal and California returns, and track the deferred gain for the day the chain ends. You and your QI remain responsible for the exchange documents and meeting the deadlines. If you are a Los Angeles or California investor considering an exchange, the planning conversation should happen before you list — not after you are in escrow. For a nationwide one-time tax consulting engagement, see the Nationwide Exchange Tax Plan.