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​Key Benefits at a Glance

• Defer capital gains taxes (and depreciation recapture) to keep more capital invested.

• Increase purchasing power—put 100% of net proceeds to work, not just what’s left after taxes.

• Upgrade property quality: trade into newer construction, better tenant profiles, or stronger locations.

• Improve cash flow by exchanging into higher CAP rates or different asset types.

• Consolidate or diversify—reshape your portfolio without triggering tax friction.

• Compound growth by repeating exchanges over time.
   

What Qualifies? (The “Like-Kind” Rule)
 

“Like-kind” for real estate is very broad: investment or business property for other investment or business property (e.g., SFR rental → small apartment → retail → land held for investment).
Not eligible: your primary residence, second homes, or flips held primarily for resale.
 

How a 1031 Exchange Works (Step-by-Step)
 

1. List/prepare the sale of your investment property.

2. Engage a Qualified Intermediary (QI) before closing—you cannot take receipt of the funds.

3. Sell the relinquished property. Proceeds go directly to the QI escrow.

4. Identify replacement property(ies) within 45 days of your sale (the “Identification Period”).

   • 3-Property Rule: name up to three, any value.

   • 200% Rule: name any number as long as total value ≤ 200% of the property you sold.

   • 95% Rule: acquire at least 95% of the total value you identified.

5. Close on the replacement property within 180 days of the sale (or by your tax filing deadline, if earlier).

6. Match or exceed value & debt (or add cash) to fully defer taxes. Any cash you take out or debt not replaced is taxable “boot.”

 

Pro tip: Start sourcing replacements before you close your sale. Inventory moves fast.

Numbers That Matter
 

• 45 days to identify replacements

• 180 days to close

• Same taxpayer must sell and buy (watch changes to vesting/entities)

• All proceeds must go through the QI—no touching the funds

• Match or exceed price and debt (or add cash) to avoid boot
   

Cost Basis & Depreciation (Why This Really Works)
 

• Your cost basis “carries over” from property to property in a 1031—there is no reset just because you bought something more expensive.

• Depreciation recapture is also deferred if the exchange is done correctly.

• Improvements and additional cash you invest can increase basis.

• When you eventually sell without exchanging, deferred gains (and any recapture) become taxable at that time.
   

Example (simplified):

Buy for $100,000 → exchange into $1,000,000 → exchange into $2,000,000 → later sell for $2,500,000 without exchanging. If you didn’t add improvements/cash along the way, your deferred gain largely traces back to the original low basis, and you pay tax then. (We can run a custom basis/depreciation analysis for your properties.)
 

California-Specific Notes
 

• California generally conforms to federal 1031 for real property.

• If you exchange out of CA, the Franchise Tax Board requires tracking/reporting of deferred gains; selling later could trigger CA tax on the CA-sourced gain (“clawback”).

• Keep meticulous records and file the required CA forms each year.
   

Common Mistakes to Avoid
 

• Missing the 45/180-day deadlines. These are hard deadlines—no extensions for “almost.”

• Touching the funds. Always route through a Qualified Intermediary.

• Changing the taxpayer. Title/vesting must be consistent from sale to purchase.

• Under-identifying or picking properties you can’t close on.

• Creating “boot” by accident (taking cash out or reducing debt without adding cash).

• Forgetting depreciation recapture—it’s deferred, not erased.
   

Popular Exchange Strategies
 

• Trade up: SFR → 4-plex → 10-unit for scale and professional management.

• Passive pivot: Active management → NNN retail or Delaware Statutory Trust (DST).

• Market rotation: Low-yield coastal → higher-yield inland (Murrieta/Temecula), or vice versa for stability.

• Consolidation: Several small homes → one larger, easier-to-manage asset.

• Diversification: One building → multiple doors in different submarkets.
   

Quick Eligibility Checklist
 

• Property is held for investment or business use (not personal).

• You can identify within 45 days and close within 180 days.

• You’ll use a Qualified Intermediary and keep proceeds out of your control.

• You’ll match/exceed value and debt to avoid boot.

• Same taxpayer/entity will sell and buy.
   

FAQs
 

Is a 1031 only for large investors?
No. Any investor with an investment or business property can use it if the rules are followed.

Can I exchange my primary home?
No. But investment portions (e.g., a duplex where you rent a unit) may qualify proportionally—ask your CPA.

Can I take some cash out?
Yes, but that portion is taxable boot. It reduces your deferral.

Do I pay taxes someday?
If you eventually sell without doing a 1031, deferred capital gains and depreciation recapture become taxable. Some investors continue exchanging; under current law, heirs may receive a step-up in basis at death.

What if my replacement appraises lower?
A shortfall can create boot unless you adjust with additional cash or different financing.

What We’ll Do For You
 

• Deal mapping & timing so you hit your 45/180-day windows

• Property sourcing (on- and off-market) aligned to your yield/risk goals

• Local analysis (Murrieta, Temecula, Oceanside, Vista, Carlsbad, etc.)

• Team coordination with your QI, lender, CPA, and escrow

• Cash-flow & tax-deferral scenarios so you choose with confidence
   

Get Your Free 1031 Strategy Session
 

SoCal Realty & Investments
Andrew Georgitsis, DRE#02266192
📞 866-322-5487
✉️ info@socalrealtyandinvestments.com
🌐 www.socalrealtyandinvestments.com