1031 exchanges for Texas commercial property
A 1031 exchange is one of the most powerful tools in commercial real estate: defer capital-gains tax by rolling proceeds into the next property. Here's how it works in Texas and what counts as like-kind.
Example: commercial property at 11304/302 IH-35, Austin — sold by SCORE Property Group; the kind of asset often acquired through a 1031 exchange.
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How does a 1031 exchange work for Texas commercial property?
A 1031 exchange defers federal capital-gains tax when you sell investment or business property and reinvest into like-kind replacement property. You sell; the proceeds go to a qualified intermediary (you can't touch them); within 45 days you identify replacement property in writing; and within 180 days of the sale you close on it. To fully defer, buy equal-or-greater value and reinvest all your equity, replacing debt with new debt or cash.
| Step | Rule |
|---|---|
| Use a qualified intermediary (QI) | Required — and arranged before the sale closes. A neutral QI holds your sale proceeds the entire time; if that money ever reaches you (even for a moment, or in your own bank account), the IRS treats it as a completed, taxable sale and the exchange fails. Tax pros call this the “constructive receipt” rule — the QI exists so you never take possession of the cash. |
| 45-day identification | Identify replacement property in writing within 45 days of the sale. |
| 180-day closing | Close on the replacement property within 180 days of the sale. |
| Equal-or-greater value | Buy property worth at least as much; reinvest all equity to fully defer. |
| Replace the debt | Match or exceed prior debt with new debt or additional cash. |
Texas has no state income tax, so the deferral you're capturing is federal — but the rules apply identically to Texas property, and the strategy is heavily used here precisely because of the state's investment activity. Miss a deadline or touch the cash and the exchange collapses, so the QI and agent coordination matter. This is general information, not tax or legal advice — confirm specifics with your CPA and qualified intermediary.
What qualifies as a like-kind property in a 1031 exchange?
For real estate, like-kind is interpreted broadly: any U.S. real property held for investment or business use can be exchanged for any other such real property. Raw land can be swapped for an apartment building, an industrial building for a retail center, or one property for several. It does not include a primary residence, flip/dealer inventory held for resale, or (since 2018) personal property and most non-real-estate assets.
The test is how the property is held, not its type. Both the relinquished and replacement properties must be held for investment or productive use in a trade or business. That flexibility is what makes the tool so useful — you can exchange Austin development land for a stabilized NNN retail asset, trading active risk for passive income while deferring the gain. Many of our NNN buyers arrive via a 1031 from land or industrial sales.
Planning a 1031 exchange in Texas?
We coordinate the sale, the replacement search, and the 45/180-day clock so your exchange closes cleanly. We'll work alongside your CPA and qualified intermediary.
Map out your exchange