FAQ · June 23, 2026 · Steven Owen
How does a 1031 exchange work for Texas commercial property?
A 1031 exchange lets you sell investment or business real estate and defer the federal capital-gains tax and depreciation recapture — as long as you reinvest the proceeds into like-kind real estate through a qualified intermediary, on a strict timeline. Two clocks start the day your sale closes: 45 days to identify the replacement property in writing, and 180 days to close on it. Reinvest equal or greater value and debt into like-kind property held for investment, never touch the cash yourself, and the tax bill is deferred — potentially indefinitely. The rules are unchanged for 2026: recent federal tax legislation preserved Section 1031 in full, without the deferral cap that had been proposed.
How a 1031 exchange actually works, step by step
- Engage a qualified intermediary (QI) before you close. The QI holds your sale proceeds. If the money touches your hands or bank account, the exchange is dead — this is the most common fatal error, and it has to be set up before the relinquished sale closes.
- Sell the relinquished property. Your closing date starts both clocks.
- Identify replacement property within 45 days. In writing, signed, delivered to the QI. The 45 days include weekends and holidays.
- Close on the replacement within 180 days. From the relinquished closing date — not from the end of the 45-day window.
- Match value and debt. To defer 100% of the tax, buy equal or greater value and replace the debt you paid off. Any shortfall (“boot”) is taxable.
The two deadlines, in plain terms
| Clock | Length | What it means |
|---|---|---|
| Identification period | 45 calendar days | Identify replacement property in writing to your QI. No extensions for weekends, holidays, or ordinary delays. |
| Exchange period | 180 calendar days | Close on the replacement. Runs concurrently with (not after) the 45 days. |
Both clocks start on the day the relinquished property closes, and they run at the same time — so if you use all 45 days to identify, you have 135 left to close. Miss the 45-day mark and the exchange fails completely: no grace period, no partial credit. (Federally declared disasters, which have been frequent in Texas, can trigger automatic 45/180 extensions for affected areas.)
What counts as “like-kind”
For real estate, like-kind is far broader than most owners expect. Almost any U.S. real property held for investment or business use can be exchanged for almost any other: raw land for an industrial building, a retail strip for an apartment complex, one property for several, or several for one. What matters is intent and type, not asset class. The guardrails:
- It must be real property. Since the 2017 tax law, personal property (equipment, vehicles, etc.) no longer qualifies.
- Both the sold and purchased property must be held for investment or productive business use — not your home, and not inventory you bought mainly to flip.
- The same taxpayer who sold must buy — the entity on title has to match.
- Both properties must be in the United States (U.S. for U.S.; foreign property is its own separate like-kind class).
The identification rules most people get wrong
Within the 45 days you must identify replacements under one of three rules:
- Three-property rule: identify up to three properties, any value — the option most exchangers use.
- 200% rule: identify more than three, as long as their combined value is no more than 200% of what you sold.
- 95% rule: identify any number at any value, but you must close on at least 95% of the total identified value.
What’s different about a 1031 in Texas
Texas has no state income tax, so a 1031 here defers federal tax — long-term capital gains (typically 15–20%), the 3.8% net investment income tax where it applies, and depreciation recapture taxed up to 25%. That recapture is the piece owners forget: even if a property barely appreciated, years of depreciation deductions can create a real tax bill at sale that a 1031 defers. Texas is also one of the most active 1031 markets in the country — population and job growth keep replacement demand high, which means quality replacement property moves fast and the 45-day clock is the real constraint. The discipline is lining up your replacement target before you sell, not after.
How exchanges quietly fail
- Touching the money. No QI in place, or proceeds routed through you — instant disqualification.
- Missing the 45-day identification. The single most common failure; there is no extension.
- Not enough replacement inventory. Identifying in a hot market without a real shortlist, then running out of clock.
- Taking boot. Buying down in value or pulling cash out — the difference is taxable.
- Title mismatch. Selling in one entity and trying to buy in another.
Go deeper on a specific part of the exchange
This page is the overview. Each step below has its own guide:
| If you are asking… | Read |
|---|---|
| Exactly when are my deadlines, and can they be shortened? | The 45-day and 180-day rules, and the trap that shortens them |
| I reinvested everything — why do I owe tax? | Boot and debt replacement |
| How do I actually find a replacement property in time? | Finding replacement property in 45 days in Texas |
| I found the replacement before I sold — or I need to build on it | Reverse and improvement exchanges |
| Nothing will close in time — what are my fallbacks? | DSTs and net lease as replacement property |
| Should I use an Opportunity Zone instead? | 1031 vs. Opportunity Zone, and what changes in 2027 |
| Can I exchange into or out of raw land? | 1031 exchanges and land |
How SCORE helps you exchange
Steven Owen runs 1031s the way an engineer with an NYU Stern finance MBA would — backward from the deadline. Before you list the relinquished property, SCORE works the replacement side first: we source on- and off-market Texas targets through our buy-box matching engine and a 1,700+ developer and investor network, so your 45-day identification list is real, not hopeful. We coordinate with your qualified intermediary, CPA, and attorney — we don’t replace them — and underwrite each replacement on credit, term, and basis so the asset you exchange into is one you actually want to own.
Planning a 1031 in Texas?
Start the replacement search before you sell. Tell us what you’re trading out of and what you want to own next.
Book a consultation Tell us your buy boxCurrent as of June 2026; Section 1031 was preserved in full by recent federal tax legislation. This is general information, not tax or legal advice — 1031 exchanges have strict requirements and real consequences if done wrong, so work with a qualified intermediary and your own CPA and attorney. Related: 1031 Exchange · Retail / NNN · NNN retail cap rates in Texas.