1031 Exchanges for San Diego Investment Property: A General Overview

A 1031 exchange, also called a like-kind exchange, is a way the tax code lets some investors defer gain when they swap one piece of real estate for another. At the time this article was written (October 2026), the IRS said that since the 2017 tax law changes, only real property qualifies, and property held primarily for sale does not. The rules have strict timing and paperwork. This guide is a general overview of what the IRS and the California Franchise Tax Board publish. It is not tax or legal advice, and I am a REALTOR, not a tax professional or an attorney.

What a like-kind exchange is

Normally, selling an investment property can lead to a taxable gain. Section 1031 of the tax code allows some exchanges to defer that gain. The IRS describes it as an exchange of real property held for investment or for productive use in a trade or business for other real property of a like kind.

At the time this article was written, the IRS page on real estate tax tips said that since the Tax Cuts and Jobs Act, only real property qualifies. It said property held primarily for sale, such as inventory, is not eligible. The IRS page was last reviewed May 1, 2026.

Whether a property counts as held for investment is a tax question that depends on facts. A CPA or tax attorney can read the facts. A REALTOR cannot.

The timing rules the IRS describes

At the time this article was written, the IRS instructions for Form 8824 (the 2025 version, updated April 30, 2026) described two clocks for a delayed exchange.

• Identify the replacement property within 45 days after the old property is transferred.
• Receive the replacement property within 180 days after the transfer, or by the due date of the tax return for that year including extensions, whichever is earlier.

Here is a made-up date example, using my math. If an old property closes on March 1, 2027, then 45 days later is April 15, 2027 and 180 days later is August 28, 2027. The IRS instructions also have rules about the tax return due date, so the real deadline can be earlier than 180 days.

The IRS describes these as strict deadlines. Missing one can change the tax result. Only a tax professional can say how they apply to a particular sale.

Qualified intermediaries and related parties

The IRS instructions describe a qualified intermediary, a third party who holds the sale money so the owner does not receive it. The instructions say related parties and agents of the owner cannot act in that role.

The instructions also have a related-party rule. If an exchange is made with a related person, there is a two-year holding rule. The details are in the IRS instructions, and an attorney or CPA can explain whether a relationship counts as related.

What boot means

Boot is the IRS term for cash or other value received in an exchange that is not like-kind property. The IRS page says gain can be recognized, which means taxed, up to the amount of boot received.

Here is a made-up example, using my math. Say an investment property sells for $1,500,000 and the replacement property costs $1,300,000. The difference is $200,000. If that $200,000 were received in cash, the IRS description suggests it could be boot. How much gain would be taxed depends on the owner's tax basis and other facts, which I do not know and cannot calculate. A CPA can run the real numbers.

Debt can also matter in an exchange. This guide does not go into it, because the rules are technical.

Reporting the exchange

The IRS says a like-kind exchange is reported on Form 8824. The instructions say it is filed for the year the exchange happened.

California has its own reporting. At the time this article was written, the Franchise Tax Board said a taxpayer who exchanges California property for out-of-state property and defers California-source gain must file Form FTB 3840. It said filing generally continues each year until the deferred gain is recognized. The FTB page also said that for tax years beginning on or after January 1, 2025, California limits like-kind exchanges to real property.

State and federal rules can differ and can change. A California tax professional can explain which forms apply.

Property tax is a separate system

A 1031 exchange is about income tax. Property tax works under a different set of rules, and a purchase can change the assessed value of the new property. My overview of how San Diego property taxes work describes the basics.

Selling also has non-tax costs. My guide on the cost to sell a home in San Diego covers those, and my guide to net proceeds from selling shows how they come off a sale price. For help comparing rentals, my overview of cash flow, cap rate and cash-on-cash return explains common terms.

Please talk with a professional

1031 exchanges are among the more technical areas of real estate tax. The IRS and FTB pages I used are summaries, and the law has more details and exceptions.

I am a REALTOR, not a CPA, tax advisor or attorney. I can help with the real estate side of a sale or purchase, but please talk with a qualified tax professional and attorney before you list or buy anything with an exchange in mind.

Questions people bring to a CPA or attorney

• Does this property qualify as held for investment or business use?
• Who will serve as the qualified intermediary, and when must they be hired?
• What are my exact 45 day and 180 day dates?
• How would boot, debt or related parties affect the result?
• Which federal and California forms must be filed?

Related guides

• Rent increase rules in San Diego
• Short-term rental rules in San Diego
• Cash flow, cap rate and cash-on-cash return in San Diego
• House hacking in San Diego
• How San Diego property taxes are calculated
• The cost to sell a home in San Diego
• Net proceeds from selling a home in San Diego

Frequently asked questions

What is a 1031 exchange?

It is a tax code provision that lets some investors defer gain when they exchange real property held for investment or business use for other like-kind real property. A CPA or tax attorney can say whether it applies.

What is the 45 day and 180 day rule?

At the time this article was written, the IRS instructions for Form 8824 described identifying replacement property within 45 days and receiving it within 180 days or by the return due date, whichever is earlier. A tax professional can confirm your dates.

Can I do a 1031 exchange on a personal residence?

At the time this article was written, the IRS said property held primarily for sale does not qualify and that the exchange covers property held for investment or business use. Whether a certain property qualifies is a tax question for a CPA or attorney.

What is boot in a 1031 exchange?

Boot is cash or other value received that is not like-kind property. The IRS says gain can be recognized up to the amount of boot. A CPA can work out the real amount.

Does California have its own 1031 rules?

At the time this article was written, the Franchise Tax Board said Form FTB 3840 is used for some exchanges of California property for out-of-state property, and that California limits exchanges to real property for tax years beginning on or after January 1, 2025. Please ask a California tax professional.

About the author

Trevor Landress is a San Diego REALTOR® with Coldwell Banker West (DRE# 02126901). He was born and raised in San Diego and has been licensed since 2021. Trevor helps homeowners sell, guides first-time buyers through the home buying process and assists investors with their next acquisition. His work includes negotiating offers, analyzing market trends, building pricing strategies and running marketing campaigns for his listings.

He serves clients across San Diego County, from coastal communities like La Jolla, Del Mar and Carlsbad to neighborhoods inland. Trevor is part of the Campbell Group, a three-generation real estate team, and he and the Campbell Group consistently rank as a top producing team at Coldwell Banker West each month. He writes these guides to help San Diego buyers and sellers navigate an ever-changing market.

Each guide on this blog is built from official or primary sources, and the text names the source and the month it was checked. When a fact can go stale, such as a rate, a fee, a deadline or a rule, the guide says so. The goal is plain answers you can use before you make a big decision.

Trevor is a REALTOR, not a tax advisor, attorney, lender or contractor. For questions in those areas, he recommends you check with the right professional. To talk through your plans, call or text (619) 402-4614 or contact Trevor Landress.

How I help San Diego home buyers

Trevor guides first-time buyers through the home buying process, from setting a budget to closing. His work includes negotiating offers and analyzing market trends so buyers understand what a home may really cost to own.

How I help San Diego home sellers

Trevor helps homeowners sell with pricing strategies, marketing campaigns, offer negotiation and market analysis, so sellers know what to expect before they list.

Sources

• Internal Revenue Service, Like-Kind Exchanges: Real Estate Tax Tips (last reviewed May 1, 2026)
• Internal Revenue Service, Instructions for Form 8824 (2025, updated April 30, 2026)
• California Franchise Tax Board, Reporting like-kind exchanges (checked October 2026)

This guide is general information only. It is not tax, legal or financial advice, and I am not a tax professional or an attorney. Please talk with a licensed CPA, tax professional or attorney, and with the County or the agency named above, before you make any decision.