How Does a 1031 Exchange Work with Rental Properties?


  • A rental property is usually on a 26.5 year depreciation schedule; after the 26.5 years the property becomes completely depreciated. When you complete a 1031 exchange you can sell the depreciated property without paying taxes and buy a new property with a brand new depreciation schedule.

  • Hey Mark, just wanted to thank you and grats on the incredible success in real estate. I was wondering, do you avoid the stock market entirely to focus on real estate investing? Thanks,

    • Hi, thanks for the comment. I have an IRA that I barely pay attention too. I have some index funds in there, but I really focus on the real estate.

  • Thank you so much for sharing more about what 1031 exchanges are and how they work. I have been hearing more about these, and my friend even suggested that I look into this for my business. It sounds to me like this would be a really good idea, since you can sell and buy a property without too much problem. It would be really nice to use this kind of exchange with stocks that I have, and possibly even try it with bonds. I will try to look into this soon to see if I can get some good trades done. Thanks for the great post!

  • Im selling a SFR and buying a multifamily, can I do that on 1031?

    • Mark Ferguson says:

      I believe so, as long as they are investments. Always talk to an accountant.

  • This is a great article, but it has contributed to my fears that I messed up my 1031. I used a QEAA to handle the exchange. I sold my rental property for $865K (~$800K after real estate costs deducted). I paid off the loan and had $505 to purchase replacement property. I located my property within the 45 days and purchased it for $565K, having to pitch in the additional $60K out-of-pocket. In preparing my taxes I’m still being taxed nearly $50K for a capital gain of over $150K. I had not accounted for the paying off the loan as gain. Not sure how to proceed as the tax bill will wipe us out.

    • Mark Ferguson says:

      Uh Oh, that doesn’t sound good.

  • Hello Mark, It is an interesting article. Thanks. I am curious, Can you exchange a property where 50% of the property is rental and 50% is residential. Can you exchange 50% of its value and use life time exclusion to offset gain on 50% of the residential portion? It sounds tricky. I read the IRS article on 1031 exchange. It did not mention an exclusive use on exchange property.
    Thanks and await your reply and more of your articles.

    • Mark Ferguson says:

      I would ask an accountant on that one.

  • Ruth Tanur says:

    If you are exchanging one rental property for another can the new property be a furnished home if the old one is not being sold furnished?

    • Mark Ferguson says:

      I would not think that is a problem, but I would talk with your cpa

  • We just 1031 exchanged rental to rental. We are renting out the new residence on a weekly or monthly basis to traveling nurses employed at a local hospital. The house is about 3.5 hour drive from our primary residence so when we go there to work on it we usually stay one night. Is there a rule of how many nights we can stay there in a year? Also, how long does it have to be a rental before we make it a primary residence?

    • Mark Ferguson says:

      I would talk to an accountant

  • If every answer is…talk to an accountant, I would recommend all of you buy a different book. There are lots of authors out there not just looking for book profits that are very helpful online. Without advertising for them, look around, they pop up quick. Best of luck

    • Mark Ferguson says:

      That is a weird comment. This article talks all about 1031 exchanges.

  • desiree patenaude says:

    How many 1031 transactions can one person do in a year?

    • Mark Ferguson says:

      I do not think there is a limit, but I would check with your accountant.

  • Brian Kho says:

    Hi Mark
    I’m selling my 6-unit apartment can I do a 1031 exchange with single-family house ?Thanks

    • Mark Ferguson says: