What a 1031 exchange does
When you sell appreciated investment real estate, you normally owe capital-gains tax (and possibly depreciation recapture) on the profit. A 1031 exchange lets you defer that tax by rolling the proceeds into another qualifying property. You're not erasing the tax — you're deferring it, potentially indefinitely, as you exchange from one property into the next. Florida has no state income tax, so the deferral here is on the federal capital-gains and recapture tax, which is still substantial on a well-appreciated property.
The rules that make or break the exchange
1031 is unforgiving on process. Miss a deadline or touch the money, and the exchange fails — turning a tax-deferred sale into a fully taxable one. The core requirements:
- Like-kind property. For real estate, "like-kind" is broad: almost any U.S. real property held for investment or business qualifies to exchange for almost any other. A Florida rental condo can be exchanged for raw land, a strip mall, or an apartment building.
- Qualified intermediary (QI). You cannot take possession of the sale proceeds. A qualified intermediary must hold the funds between the sale and the purchase. If the money hits your account, the exchange is blown.
- 45-day identification period. Within 45 days of selling the relinquished property, you must formally identify your replacement property or properties in writing, following the IRS identification rules.
- 180-day exchange period. You must close on the replacement property within 180 days of the sale (or by your tax-return due date, if earlier). These clocks run concurrently and include weekends and holidays — there are no extensions.
- Equal or greater value. To defer all the gain, you generally must reinvest all the net proceeds and acquire property of equal or greater value and debt. Cash you pull out ("boot") is taxable.
- Same taxpayer. The party that sold must be the party that buys. Title-holding must line up, which matters when property is held in an LLC or trust.
Common Florida 1031 mistakes
- Setting up the QI too late. The qualified intermediary must be in place before closing on the sale. You can't sell first and arrange the exchange afterward.
- Blowing the 45-day identification. The identification rules are strict and the deadline is hard. Vague or late identification kills the deferral.
- Trying to exchange a residence. Your homestead doesn't qualify. (A different rule — the Section 121 exclusion — covers gain on a primary residence.) Mixed-use and converted properties need careful analysis.
- Ignoring the entity/title question. If your property is held in a partnership or multi-member LLC and the owners want to go separate ways, "drop and swap" planning has to happen well ahead of the sale.
- Forgetting depreciation recapture. A failed exchange triggers not just capital-gains tax but recapture of prior depreciation, which can be taxed at a higher rate.
How the attorney and CPA roles fit together
A 1031 exchange is a team effort. Your CPA models the tax and confirms the numbers work. The qualified intermediary holds the funds and handles the exchange documents. The real estate attorney coordinates the legal side — reviewing the contracts on both the sale and the purchase, confirming the same-taxpayer and title issues line up (especially with LLC or trust ownership), and making sure the exchange language is in the purchase and sale agreements. Get all three engaged before you sign the contract to sell, not after. If your Florida investment property is also part of your estate plan, there are additional reasons to coordinate — heirs may receive a stepped-up basis, which interacts with a lifetime of deferred exchanges.
Frequently Asked Questions
The Truestead Takeaway
A 1031 exchange is one of the most powerful tools a Florida real estate investor has — but it rewards preparation and punishes improvisation. The deferral is only as good as your compliance with the 45-day and 180-day deadlines, the qualified-intermediary requirement, and the same-taxpayer and reinvestment rules. Assemble your attorney, CPA, and QI before you sign the contract to sell, and the exchange is straightforward. Try to bolt it on afterward, and it's usually too late.
Talk to a Florida Real Estate Attorney
Planning a 1031 exchange on Florida investment property? Schedule a consultation with Arthur Simpson, Esq. to coordinate the legal side before you sign.
Schedule a Consultation →This article is for general informational purposes only and does not constitute legal advice, nor does reading it create an attorney-client relationship. Florida real estate, tax, and estate law are fact-specific and change over time. Consult a licensed Florida attorney about your individual circumstances. Arthur Simpson, Esq. is licensed to practice law in the State of Florida. Attorney advertising.