Many investors—new and experienced—still get confused about how 1031 Exchanges really work. These misunderstandings can lead to missed opportunities and costly mistakes.

A 1031 Exchange allows you to defer paying capital gains taxes when you sell an investment property—if you reinvest the proceeds into another qualifying property. But the rules are strict, and the details matter.

Common Misunderstandings About 1031 Exchanges in 2025

Here are the most-searched misconceptions, explained in simple terms:

1. Like-Kind Rules – It’s broader than you think. “Like-kind” doesn’t mean the properties must be identical.

2. Vacation & Second Homes – These don’t usually qualify unless certain requirements are met.

3. Exchange Timelines & Extensions – You have 45 days to identify your replacement property and 180 days to close—no exceptions for weekends or holidays.

4. Replacing Debt – You must replace any debt you paid off in the sale to fully defer taxes.

5. Reverse Exchanges – Yes, you can buy first and sell later, but it’s more complex.

6. Related Parties – Special rules apply when buying from or selling to relatives.

7. Vesting – Title must be held in the same name for both the sale and the purchase.

8. Seller Financing – If not handled correctly, it can create taxable income.

9. Improvement Exchanges – You can use exchange funds to improve the property, but the work must be completed before the deadline.

10. Partial Exchanges – If you take some cash out, you’ll pay taxes on that portion.
    Bonus: DST, REIT, and UPREITs – Alternative structures exist, but each has its own rules and benefits.

Why This Matters
Knowing the rules helps you keep more of your money working for you instead of going to taxes. A 1031 Exchange can be a powerful wealth-building tool—if you do it right.

Want the Full Guide?
Read the complete list of misconceptions and learn how to avoid costly mistakes here

Thinking about selling your property? Don’t leave money on the table. A 1031 Exchange could help you grow your investments without paying taxes right away.
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