1031 Exchange Services

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What exactly is the Navi Title 1031 Exchange? What does it do?

A 1031 Exchange is a tax deferral tool that allows the seller of qualifying real property to defer taxes on an exchange transaction including state and federal Capital Gains, Depreciation Recapture, and Net Investment Income Tax, provided that the value of the property sold is reinvested in other qualifying real property. Multiple requirements must be satisfied for a valid 1031 Exchange.

What are eligible properties for a 1031 exchange?

•Commercial real estate (e.g., office buildings, retail centers, warehouses)
• Residential rental properties (e.g., single-family rentals, apartment complexes)
• Vacant land held for investment
• Industrial properties
• Agricultural land or farmland
• Oil, gas, and mineral interests (in some cases)
• Delaware Statutory Trust (DST) interests
• Tenant-in-Common (TIC) interests
• Long-term leasehold interests (30+ years)

When does it make sense to do a 1031 exchange?

A 1031 exchange may be a good fit if:
You or your entity pay U.S. taxes.
You’re selling real property held for business or investment purposes.
You plan to reinvest all (or most) of the sale proceeds into another business or investment property.
You have not already received the sale proceeds.
You can identify a replacement property within 45 days of selling.
You can complete the purchase of the new property within 180 days.
If you’re reinvesting into a personal home, keeping most of the proceeds, or have already taken the sale funds, a 1031 exchange likely won’t provide value.

Who exactly manages the 1031 exchange process?

A 1031 exchange is managed by a qualified intermediary (QI), an impartial third party who holds the proceeds from the property sale until the replacement property closes. The QI structures the exchange, prepares the necessary documentation, and ensures compliance with IRS rules at both the state and federal level. While there are no federal regulations governing QIs, many states have requirements such as bonding, licensing, escrow protections, and fund withdrawal safeguards. Because the QI is central to the success of a 1031 exchange, it’s important to choose a reputable provider to ensure your tax deferral holds up under IRS review.

Can you buy a property before you sell a property in a 1031 exchange?

Yes, but not with a traditional forward exchange. To purchase a replacement property before selling your relinquished one, you must use a Reverse Exchange. In this structure, a Qualified Intermediary sets up a special-purpose entity (SPE) to temporarily hold title to the replacement property until your relinquished property sells. You or your lender provide funds for the purchase, and the property is leased back to you to manage during the process. Once the relinquished property sells, the exchange proceeds are used to pay down the initial loan, and ownership of the replacement property is transferred to you. While more complex than a standard exchange, a Reverse Exchange still requires the entire transaction to be completed within 180 days.

How does a property qualify as eligible for a 1031 Exchange?

To qualify for a 1031 exchange, properties must be like-kind to one another. The term "like-kind" refers to the nature or character of the property, not its quality, grade, or class. Eligible properties must be held for investment or business use—not for personal use.

What are the requirements and rules for a 1031 Exchange?

All 1031 exchanges have two deadlines: a 45-day identification period and a 180-day completion period from the sale of the relinquished property. Within 45 days, you must identify replacement properties in writing to your qualified intermediary, using a clear address or legal description. You can choose from three identification rules:
‍
‍3-Property Rule: List up to three properties, regardless of value.
‍200% Rule: List more than three properties, but their combined value can’t exceed 200% of what you sold.
‍95% Rule: Identify unlimited properties, but you must close on at least 95% of their combined value.

By day 180, you must close on one or more of the identified properties. Missing either deadline disqualifies the exchange, and taxes will be due on the sale.

How much money do you have to reinvest in a 1031 exchange?

To fully defer all capital gains and depreciation recapture taxes, you must reinvest an amount equal to or greater than the sale price of the property you’re selling. Any portion not reinvested—known as “boot”—is taxable. Boot can take the form of cash, debt reduction (mortgage boot), or other non-qualifying property like securities or partnership interests. Even credits on the settlement statement, such as earnest money reimbursements or prorated taxes and rents, can create taxable boot if not handled properly. In short, reinvesting the entire sale amount avoids taxation, while taking any cash or debt relief means you’ll owe taxes on that portion.

Does a vacation home qualify for a 1031 exchange?

Yes, but only under strict IRS rules. Since 2008, vacation homes can qualify if they are treated as investment properties rather than personal residences. To use a vacation home in a 1031 exchange, it must be held for at least 24 months, rented at fair market value for at least 14 days per year, and personal use must not exceed 14 days or 10% of the rental days in each 12-month period. The same requirements apply to both the property being sold and the replacement property. Limited personal use beyond these thresholds is allowed only if the time is spent on maintenance or improvements, with proper receipts kept as proof. Because these rules are tightly regulated, exchangers should consult tax and legal counsel before including a vacation home in a 1031 exchange.

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