A 1031 exchange, named after Section 1031 of the Internal Revenue Code, allows real estate investors to defer capital gains taxes by selling an investment property and reinvesting the proceeds into a like-kind replacement property. When executed properly, this strategy can defer taxes indefinitely — allowing you to grow your portfolio, upgrade your properties, and compound your equity without giving a portion to the IRS at each transaction. Mr. Biggs is one of the few real estate brokers who integrates tax strategy directly into the brokerage process. Through DontPayTax.com, Mr. Biggs coordinates every aspect of a 1031 exchange — from property identification and brokerage to multi-state transaction support and closing — all under one roof, while also helping clients reinvest into assets like vacant land or agricultural properties.
How a 1031 Exchange Works
- Sell your investment property — The sale proceeds go directly to a qualified intermediary (QI). You never touch the money.
- Identify replacement properties within 45 days — You have exactly 45 calendar days from the sale to identify up to three potential replacement properties.
- Close on your replacement property within 180 days — You must close on at least one identified replacement property within 180 calendar days of the original sale.
- Defer your capital gains taxes — If executed properly, 100% of your capital gains taxes are deferred into the replacement property.
1031 Exchange Rules & Requirements
- Both the relinquished (sold) and replacement (purchased) properties must be held for investment or business use — not personal residences.
- Properties must be “like-kind” — which for real estate means any real property can be exchanged for any other real property (commercial for residential, land for an office building, etc.).
- A qualified intermediary must hold the sale proceeds. If you or your agent receive the funds, the exchange is disqualified.
- The replacement property must be of equal or greater value, and you must reinvest all of the net proceeds and maintain equal or greater debt to fully defer your taxes.
- The 45-day identification and 180-day closing deadlines are absolute — there are no extensions (except in limited federally declared disaster situations).
Types of 1031 Exchanges
Delayed (Starker) Exchange
The most common type. You sell first, then buy within the 45/180 day timelines. This is how the vast majority of 1031 exchanges are structured.
Simultaneous Exchange
Both properties close on the same day. While conceptually simple, simultaneous exchanges are logistically complex and less common in practice.
Reverse Exchange
You buy the replacement property first, then sell the relinquished property within 180 days. This is useful when you’ve found the perfect replacement property but haven’t yet sold your current one. Reverse exchanges require an Exchange Accommodation Titleholder (EAT) and are more expensive than standard exchanges.
Build-to-Suit (Improvement) Exchange
Use exchange funds to construct or improve the replacement property. The construction must be completed within the 180-day exchange period, and an EAT holds title during construction.
Cost Segregation Studies
A cost segregation study is an IRS-approved engineering analysis that reclassifies building components into shorter depreciation categories — typically 5, 7, or 15 years instead of 27.5 or 39 years. This front-loads your depreciation deductions, significantly reducing taxable income in the early years of ownership. Most cost segregation studies cost $5,000–$15,000 and generate 6–10x their cost in first-year tax savings.
Cost segregation is especially powerful when combined with a 1031 exchange: buy a replacement property through an exchange, then run a cost segregation study to immediately accelerate depreciation on the new acquisition.
Combining Strategies: 1031 + Cost Segregation + Bonus Depreciation
Sophisticated real estate investors use a combination of strategies to maximize their after-tax returns:
- Purchase an investment property and perform a cost segregation study to accelerate first-year depreciation deductions.
- Claim bonus depreciation (20% in 2026) on the reclassified components for additional first-year deductions.
- When ready to sell, execute a 1031 exchange to defer capital gains taxes on the sale.
- Acquire the replacement property and repeat the cost segregation process.
- Continue this cycle to compound your equity growth while deferring taxes indefinitely.
This is the wealth-building cycle that separates professional real estate investors from casual property owners — and it’s exactly the kind of integrated strategy that Mr. Biggs and DontPayTax.com are built to deliver.
Common 1031 Exchange Mistakes
- Missing the 45-day identification deadline — the single most common reason exchanges fail.
- Taking constructive receipt of funds — if you or your agent touch the money, the exchange is disqualified.
- Using a disqualified person as your QI — your attorney, accountant, or real estate agent who has served you in the prior two years cannot act as your QI.
- Receiving boot without planning — any cash, debt reduction, or non-like-kind property received is taxable.
- Not planning the exchange before listing — 1031 exchanges must be set up before the sale closes, not after.