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A 1031 exchange entails swapping one real estate investment property for another, deferring capital gains taxes. Section 1031 of the Internal Revenue Code (IRC) is the origin of the term 1031 exchange. It is often used by real estate agents, investors, title companies, and mortgage brokers like us. What is a 1031 exchange in real estate? We have already given you a simple and straightforward answer. Now, we will take you through the details.

The IRC Section 1031 has several moving parts that real estate investors have to understand before trying to use it. An exchange can only be carried out with like-kind properties. Also, the IRS rules limit its use with vacation properties. Certain tax implications and time frames can also cause problems.

An Overview of Section 1031

Essentially, a 1031 exchange lets real estate investors trade an investment property for another of a similar type. In doing so, they can avoid recognizing capital gains during the swap. Most swaps can be taxed as sales, but if yours meets the requirements of 1031, you will either have no tax or limited tax due at the time of the exchange. This allows you to roll over your profits from one investment property to the next, thereby deferring taxes until you eventually sell the property for cash.

There are no limits on the frequency of 1031 exchanges. If everything works out as planned, you will pay only one tax at a long-term capital gains rate. In 2024, it was 15% or 20% depending on income, and 0% for some lower-income taxpayers.

For instance, you can exchange an apartment building for raw land or a commercial property. As long as the properties are used for business or investment purposes and are located within the country, they qualify for a real estate exchange 1031. While the rules are surprisingly liberal, people with limited knowledge might find themselves in situations they would rather avoid.

The provision of a 1031 exchange is for investment and business property, but the rules can apply to a former principal residence under specific conditions. You can even use 1031 to swap vacation homes. Unfortunately, this loophole has become narrower than it used to be.

Depreciable Property Rules

Exclusive rules come into play when a depreciable property is exchanged. It can trigger a profit called depreciation recapture, which is taxed as ordinary income. In most instances, you can avoid this recapture by swapping one building for another. However, if you exchange improved land with a building for unimproved land without a building, the depreciation that you have previously claimed on the building will be recaptured as ordinary income.

Changes to 1031 Rules

The Tax Cuts and Jobs Act (TCJA) was introduced in December 2017. Before its passage, some exchanges of personal property, such as aircraft, franchise licenses, and equipment, qualified for a 1031 exchange. Now, only real estate defined in Section 1031 qualifies. Know that the TCJA full expensing allowance for certain tangible personal property may help to make up for this change to tax law.

Timelines and Rules for 1031 Exchange

Originally, an exchange involves a simple swap of one property for another between two individuals. Then again, the odds of finding someone with the exact property you want who also wants your property are somewhat slim. That is the reason behind the delays in exchanges, particularly in three-party or Starker exchanges.

There are two primary rules associated with timing that must be observed in a delayed exchange.

45-Day Rule

The first timing rule in a 1031 real estate exchange is associated with the designation of a replacement property. Once your property is sold, the intermediary will receive the cash. You cannot accept this cash, or it will spoil the 1031 treatment. Additionally, within 45 days of selling your property, you have to designate the replacement property in writing to the intermediary, specifying the property you wish to acquire.

The IRS says you can designate three properties if you eventually close on one of them. If the properties fall within certain valuation tests, you can designate more than three.

180-Day Rule

The second timing rule in a delayed exchange relates to closing. You must close on the new property within 180 days of the sale of the old property.

Reverse 1031 Exchange

There is one more possibility – buying the replacement property before selling the old one and still qualifying for a 1031 exchange. In this case, the same 45 and 180-day time windows apply.

To qualify, you must transfer the new property to an exchange accommodation titleholder, identify a property for exchange within 45 days, and complete the transaction within 180 days after the replacement property was purchased.

Tax Implications of 1031 Exchange: Cash and Debt

The proceeds from a 1031 exchange have to be handled carefully. If there is any cash left over after the exchange, which is called “boot,” it will be taxable as a capital gain. Similarly, if there is a discrepancy in debt, the difference in liabilities will be treated as “boot” and taxed accordingly.

One of the main ways people get into problems with these transactions is by failing to consider loans. You must consider mortgage loans or other debt on the property you relinquish and any debt on the replacement property. If you do not receive cash back but your liability drops, then that also will be considered income to you, just like cash.

1031 Exchange for Vacation Home

Maybe you have heard of taxpayers who used the 1031 provision to swap one vacation home for another, perhaps even for a house where they hope to retire, and Section 1031 delayed any recognition of gain. Later, they moved into the new property, converted it into their principal residence, and eventually planned to take the $500,000 capital gain exclusion. This lets you sell your principal residence and, along with your spouse, shield $500,000 in capital gain as long as you have lived there for two years out of the past five.

Congress tightened this loophole in 2004. However, taxpayers can still transform vacation homes into rental properties and do a 1031 exchange for real estate. If you manage to acquire a tenant and conduct yourself in a businesslike way, then you have probably converted the house to an investment property, which should make your 1031 exchange all right.

Based on the rules of the IRS, offering the vacation property for rent without having tenants would disqualify the property for a 1031 exchange.

Moving Into a 1031 Swap Residence

If you want to use the property for which you swapped as your new second or even principal home, you cannot do that right away. In 2008, the IRS introduced a new safe harbor rule. In it, the IRS said that it would not challenge whether a replacement dwelling qualified as an investment property for purposes of Section 1031. To meet the safe harbor in each of the two 12-month periods immediately after the exchange,

• You must rent the dwelling unit to another person for a fair rental for 14 days or more.

• Your personal use of the dwelling unit cannot exceed 14 days or 10% of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.

There is more: after successfully swapping one vacation or investment property for another, you cannot immediately convert the new property to your principal home and take advantage of the $500,000 exclusion.

The law changed in 2004, but before that, an investor could transfer one rental property in a 1031 exchange for another rental property, rent out the new rental property for a period, move into the property for a few years, and then sell it. This gave them the advantage of exclusion of gain from the sale of a principal residence.

If you acquire property in a 1031 exchange and later attempt to sell it as your principal residence, the exclusion will not apply during the five-year period starting with the date when the property was acquired in the 1031 like-kind exchange.

1031 Exchange for Estate Planning

One of the most significant pros of 1031 exchanges is their potential for estate planning. When you die, your heirs inherit your property as its stepped-up market value, and they will not have to pay the capital gains tax you deferred. To be precise, a 1031 exchange can pass the tax liability onto the heirs.

Reporting 1031 Exchanges to the IRS

You have to notify the IRS of the 1031 exchange by compiling and submitting Form 8824 with your tax return in the year when the exchange occurred.

In this form, you need to provide descriptions of the properties exchanged, the dates when they were identified and transferred, any relationship that you may have with the other parties with whom you exchanged properties, and the value of the like-kind properties. You also have to disclose the adjusted basis of the property given up and any liabilities that you assumed or relinquished.

You must complete the form correctly without error. If the IRS believes you have not played by the rules, you could be hit with a big tax bill and penalties.

To Conclude

What is a 1031 exchange in real estate? Savvy investors can use it as a tax-deferred strategy to build wealth. However, it has many complex moving parts. Naturally, you need to understand the rules and enlist professional help. This goes for seasoned investors, too.

FAQs

Q1. Can you do a 1031 exchange with international property?

A1. No, 1031 exchanges only apply to real estate located within the United States. Foreign properties do not qualify as like-kind assets under current IRS rules.

Q2. Is it possible to partially reinvest and still qualify for a 1031 exchange?

A2. Yes, but any portion not reinvested is considered “boot” and is subject to capital gains tax. Only the reinvested amount remains tax-deferred.

Q3. Can you use a 1031 exchange to flip houses?

A3. No, properties held for resale or short-term profits, such as flips, are not eligible. 1031 applies only to long-term investment or business-use properties.

Q4. What happens if the replacement property is of lesser value?

A4. You can still proceed, but the difference in value becomes taxable as boot. The capital gain on that difference must be reported and taxed accordingly.

Q5. Do you need a qualified intermediary for a 1031 exchange?

A5. Yes, a qualified intermediary is essential. They hold the sale proceeds and facilitate the exchange, ensuring compliance with IRS rules to maintain tax-deferred status.

What Is a DST 1031 Exchange?

Are you wondering what is DST 1031 exchange? It is a combination of two powerful real estate tools: the traditional 1031 tax-deferred exchange and investment in a Delaware Statutory Trust (DST).

Essentially, instead of buying a new property outright in your exchange, you invest in a share of a professionally managed real estate asset via a DST. It’s a smart and streamlined way to defer capital gains taxes while going passive.

A DST 1031 exchange opens doors to larger, institutional-grade properties without landlord headaches.

The Basics

• Sell Your Property – Begin with a qualifying investment or business property. Use a Qualified Intermediary to avoid accessing sales proceeds directly.
• Identify Replacement – You have 45 days to choose a DST offering as your replacement asset.
• Close Within 180 Days – Invest the proceeds into your selected DST shares within 180 days.
• Passive Ownership – You become a fractional owner; the DST sponsor handles property management.
• Defer Taxes – You defer capital gains and depreciation recapture while continuing to earn passive income.

Why Investors Choose DST through ALT Financial Network, Inc.

Tax Deferral & Equity Preservation

A DST 1031 exchange preserves the equity from your sold property within a like-kind asset. This keeps more money working for you instead of going to Uncle Sam.

Access to Institutional Real Estate

DSTs invest in high-quality properties—think medical offices and industrial facilities—normally out of reach for individual investors. You can step into these markets with a relatively low entry point.

Hands-Off Management

Say goodbye to tenant issues and property repairs. DST sponsors take care of day-to-day ops, letting you enjoy passive income without landlord stress.

Built-In Diversification

Wondering how to spread risk? You can pick multiple DST investments, each in different property types or regions—boosting diversification with ease.

Speedy Closings

Once you choose a DST, closings are fast—typically 3–5 business days. This helps you meet tight 1031 deadlines stress-free.

Advantages and Disadvantages

Is DST 1031 Right for You?

Now that you know what is DST 1031 exchange you must determine whether it is for you or not.

You might be a good fit if you:

• Want to stop managing properties but still need income
• Need a fast and smooth 1031 exchange process
• Prefer portfolio diversification with smaller investments
• Can tolerate long holding periods and limited control

However, steer clear if you:

• Want full control over property decisions
• Might need your capital back early
• Prefer direct ownership without sponsor fees

DST 1031 vs. Traditional 1031 Exchange (Whole Property)

How to Execute a DST 1031 Exchange

1. Consult with ALT Financial Network – Our team knows DSTs, 1031, and reverse 1031 exchange rules backward and forward.
2. Pick Your DST – We’ll help you find high-quality DST offerings aligned with your goals.
3. Hire a Qualified Intermediary – We can recommend trusted QIs to handle the funds securely.
4. File Identifications & Form 8824 – We ensure your paperwork meets IRS deadlines and regs.
5. Close & Start Earning – Invest in DST shares, and let the distributions begin.

ALT Financial Network, Inc. and DST 1031 Expertise

ALT Financial Network, Inc. guides investors into DST 1031 exchanges with clarity and professionalism. Our deep knowledge of DST structures, combined with strict IRS compliance, helps investors maximize tax deferral while easing into passive real estate ownership.

We work alongside your other advisors to create a custom-tailored exchange that aligns with your estate and financial goals.

A Real Example

Imagine selling a 750-unit apartment building. Instead of snagging one big replacement, you invest $500K each into three DSTs focused on office, industrial, and net-lease assets.

You get monthly income, avoid direct management, and defer taxes—all while owning real estate.

Make the DST 1031 Move with Confidence

A DST 1031 exchange can transform how you manage real estate—turning active duties into passive income and unlocking opportunities previously out of reach.

With ALT Financial Network’s guidance, you get expert support at every turn. From choosing an ideal DST to handling paperwork and keeping everything IRS-compliant, we’re by your side.

Are you ready to go over what is DST 1031 exchange in person and discover if this strategy suits your goals? Reach out today. Defer taxes, diversify easily, and experience real estate investing without lifting a hammer.

Also Read: 1031 Exchange 5-Year Rule 

FAQs

Q1. Can you do a DST 1031 exchange more than once?
A1. Yes, you can. As long as you follow IRS rules, you can keep rolling over gains from one DST 1031 exchange to another and defer taxes indefinitely.

Q2. Are DST 1031 exchanges allowed for out-of-state properties?
A2. Yes. You can sell a property in one state and invest in a DST located anywhere in the U.S., as long as both properties qualify under 1031 exchange rules.

Q3. What is the minimum investment required for a DST 1031 exchange?
A3. Most DST sponsors require a minimum investment of $25,000 to $100,000. The exact amount depends on the offering, but it’s typically lower than buying full real estate outright.

Q4. Can DST properties generate monthly income?
A4. Yes. Many DSTs distribute rental income from tenants to investors on a monthly or quarterly basis. It’s a popular reason why investors like the passive cash flow DSTs offer.

Q5. Is it possible to include a DST in an estate plan?
A5. Absolutely. DST interests can be passed to heirs, and when that happens, the stepped-up basis may eliminate deferred capital gains taxes, offering estate planning advantages for families.

Thinking of reinvesting in real estate without getting hit by taxes? You’ve probably heard of a 1031 exchange. A reverse 1031 exchange can be a powerful tool when you’re ready to buy before you sell. Instead of selling first, you acquire the replacement property and hold it while you arrange the sale. This method helps bridge timing gaps and lock in deals ahead of time. But what is a reverse 1031 exchange, and how does it differ from the typical version? Here you’ll get all the answers of your queries. 

What is a Reverse 1031 Exchange?

A reverse 1031 exchange allows you to acquire the replacement property first, even if your current asset has bot been sold yet. Instead of selling first, you purchase the new property upfront and sell your current one afterward. This will help you to lock the ideal replacement property even before you’re ready to sell the old one. It’s a smart move, but it comes with strict rules and timelines.

Benefits of a Reverse 1031 Exchange

There are various advantages of reverse 1031 exchange that make more interesting to some smart investors, checkout the below benefits:  

1. You secure your ideal property – You don’t have to rush into buying a replacement within a tight window.
2. You avoid market pressure – You can wait to sell your current property at a better price.
3. It offers more control – You can plan the deal around your schedule, not someone else’s deadline.
4. It protects against failed exchanges – You don’t risk selling first and then struggling to find a replacement in time.

These benefits are the reasons why investors often prefer this method, especially in competitive markets.

Keep the Exchange Legally Separate from You

To make a reverse 1031 exchange work, the IRS doesn’t allow you to directly own both the new and old properties at the same time. You need a third party, often called an Exchange Accommodation Titleholder (EAT).

Here’s how does a reverse 1031 exchange work:

• The EAT holds the new property on your behalf until your old one is sold.
• Once you sell your existing property, the EAT transfers the new one to you.
• This setup keeps your transaction “at arm’s length” and follows IRS rules.

This process might sound complicated, but it’s necessary to keep the exchange compliant.

Reverse 1031 Exchange Rules to Remember

This type of exchange has tight deadlines and specific steps. Here are the key rules you must follow:

45-Day Identification Window: You have 45 days from buying the new property to identify which property you plan to sell.

180-Day Completion Rule: The full transaction (buying and selling) must be done within 180 days.

Qualified Intermediary (QI): A neutral third party must manage the funds and property title transfers. You can’t touch the money directly.

Title Must Match: The name on both property titles must match, either your name or the name of your entity (LLC, trust, etc.).

If you miss a deadline, the risk is yours of losing all the tax benefits. This is why many people take 1031 exchange services to handle the paperwork and timing.

Tips for a Successful Reverse 1031 Exchange

If you want to keep the things on track and to avoid mistakes. Keep all the below tips remember:

1. Line up financing early. You’ll need to purchase the replacement property before selling.
2. Work with a solid team. A good Qualified Intermediary, tax advisor, and attorney are essential.
3. Know your timelines. Mark your 45-day and 180-day deadlines clearly.
4. Avoid disqualified parties. You can’t use family members or business partners to act as intermediaries.
5. Keep records clean. Document everything in writing to protect yourself if audited.

A little planning before can save you a big headache later.

Final Thoughts

So, what is a reverse 1031 exchange? It’s a powerful tool that lets you buy first and sell later, giving you flexibility and control over your investment timeline.

However, it’s not a DIY project. From tight deadlines to IRS rules, there’s no room for guesswork. Smart investors plan ahead, follow the rules, and work with experienced professionals.

At Altfn, we understand how complex these transactions can get. That’s why many clients trust our expert resources when navigating advanced real estate strategies like this one.

Buying a fixer-upper sounds exciting. But the cost of repairs can make it stressful. That’s where the FHA 203k loan comes in. It lets you buy and renovate a home with one loan.

With this option, you don’t need a separate loan for repairs. The 203k loan includes both the home price and renovation cost. It’s part of the government-backed FHA loan program, designed to support homeownership.

What Is an FHA 203k Loan?

An FHA 203k loan is a mortgage backed by the Federal Housing Administration. It allows homebuyers to finance both the purchase of a property and its renovation. It’s ideal for homes that need work but have solid potential.

This type of loan works well for first-time buyers or anyone without large cash reserves. Instead of taking out a second loan or high-interest credit, buyers get everything rolled into one package.

Types of FHA 203k Loans

There are two versions of the 203k loan:

• Standard FHA 203k Loan – For major structural repairs or complete renovations
• Limited FHA 203k Loan – For minor, non-structural updates under $35,000

The standard version allows for larger projects. That includes room additions, foundation work, or full kitchen remodels. The limited version is better for cosmetic updates like new flooring, paint, or roofing.

How Does an FHA 203k Loan Work?

Let’s break it down step by step:

1. Get Pre-Approved – Meet credit, income, and FHA guidelines
2. Find a Property – Choose a home that qualifies for 203k renovation
3. Estimate Repairs – Hire contractors for detailed quotes
4. Work With a Consultant – Required for standard 203k loans
5. Loan Closes – Funds are split between purchase and repair escrow
6. Renovation Begins – Funds are released in stages as work is completed

So, how does a FHA 203k loan work in practice? You apply once. You make one payment. But your loan includes both your mortgage and your improvement costs.

Also Read: What Is an FHA Commercial Loan?

What Can You Use a 203k Loan For?

Eligible upgrades include:

• Plumbing and electrical systems
• HVAC and roofing
• Flooring, windows, and doors
• Kitchen and bathroom remodeling
• Energy efficiency improvements

You can’t use it for luxury additions like swimming pools or outdoor kitchens. The repairs must add safety, function, or livability.

Benefits of an FHA 203k Loan

Why choose this loan?

• Combine purchase and repair into one mortgage
• Lower down payment (as low as 3.5%)
• Credit score minimum around 580
• Helps boost home value
• Good for older homes or foreclosures

You also avoid the hassle of getting multiple approvals from different lenders.

Challenges and Common Missteps

While this loan offers big benefits, there are things to watch for:

• Extra paperwork and documentation
• Delays from contractor issues
• Required HUD consultants for standard loans
• Higher closing costs compared to basic FHA loans

Be sure to work with lenders experienced in fha 203k loans to avoid delays

Who Should Consider a 203k Loan?

This loan isn’t for everyone. But it’s a great fit for:

• First-time buyers looking for value
• Buyers planning to live in a fixer-upper
• Investors buying a primary residence that needs work
• Homeowners wanting to upgrade instead of move

If you’re not afraid of a project and want to build equity, this is a strong option.

Final Thoughts

So, what is a FHA 203k loan? It’s a mortgage that funds both your home purchase and needed repairs.

How does a FHA 203k loan work? You get approved for one loan. You close once. Your repairs start as soon as the paperwork is done.

If you want to turn a fixer-upper into your dream home, this loan makes it possible.

Also Read: FHA Manufactured Home Loan Guidelines

Waiting weeks for loan approval isn’t ideal when your business needs funding fast. That’s where the SBA Express Loan steps in. It’s a part of the SBA 7(a) program, designed to speed up access to capital for small businesses. With faster response times and simplified paperwork, this option can be a game-changer.

An SBA Express Loan offers up to $500,000 in financing, with approval decisions made in 36 to 72 hours. While it comes with a lower SBA guarantee than standard 7(a) loans (50% vs. 85%), the trade-off is speed. For many business owners, especially those managing seasonal operations or short-term growth, that speed is worth it.

What Is an SBA Express Loan?

The SBA Express Loan is a streamlined version of the SBA 7(a) loan. It’s best suited for businesses that need funding quickly without going through a long underwriting process.

• Loan amounts: Up to $500,000
  

• Approval timeline: 36 to 72 hours
  

• SBA guarantee: 50%
  

• Uses: Working capital, inventory, equipment, or refinancing existing debt
  

Unlike traditional loans, SBA Express Loans are partially guaranteed by the U.S. Small Business Administration. This reduces risk for lenders, which can help businesses with limited credit history.

SBA Express Loan Requirements

The basic eligibility criteria are straightforward, but lenders still assess risk carefully. Here are the main requirements:

• Operate as a for-profit business
  

• Be located and operate in the U.S.
  

• Meet SBA size standards
  

• Demonstrate a need for funding
  

• Good credit history and cash flow
  

According to the SBA, most lenders look for a credit score of 650 or higher, along with proof of repayment ability. Businesses must also submit financial documents, including two years of tax returns and cash flow statements.

Checklist:

• Two years of business tax returns
  

• Business plan and financial projections
  

• Credit score of 650+
• Personal guarantees from owners

SBA Veterans Express Loan

Veterans benefit from even better terms. The SBA Veterans Advantage program reduces or eliminates upfront guarantee fees for veteran-owned businesses.

• No upfront fee for loans under $350,000

• Lower interest rates

• Streamlined paperwork
  

Data from the SBA shows that veteran-owned businesses make up roughly 9% of all U.S. firms. The Veterans Advantage initiative supports easier access to capital by removing some financial barriers for veterans, making the Express Loan even more accessible.

Common Use Cases for SBA Express Loans

These loans are versatile. According to a 2023 SBA report, the most common uses include:

• Inventory restocking

• Managing payroll

• Equipment purchases

• Emergency capital needs

• Refinancing short-term debt

The SBA reported that over 28,000 Express Loans were issued in FY2022, representing over $2.7 billion in total funding volume.

A DSCR of 1.25 or higher is typically required to ensure the business can handle debt payments comfortably.

Trusted SBA Loan Lenders: ALT Financial

ALT Financial is a full-service mortgage and real estate brokerage based in Southern California. As experienced SBA loan lenders, we guide small business owners through every step—loan selection, application, and funding. Whether you’re applying for an SBA Express Loan or exploring a 504 option, our team offers tailored advice and fast-track processing to match your business goals.

How Does an SBA Express Loan Fit into the SBA Loan Ecosystem?

Think of the SBA Express Loan as the agile middleweight. It’s quicker than a 7(a) loan but doesn’t offer the same ceiling. On the other hand, the SBA 504 Loan is geared toward long-term real estate or equipment financing.

If you’re just starting out or looking for a loan below $500,000, Express is a great entry point. For bigger goals or property investments, the other SBA loan types offer more flexibility.

Final Thoughts

The SBA Express Loan is ideal for business owners who need capital fast and don’t want to wait weeks for an answer. While it offers less backing than standard loans, the speed and simplicity are hard to beat.

If your business needs a short-term boost or you’re a veteran entrepreneur ready to expand, this program might be your best path forward.