1031 Exchanges on the Treasure Coast: How to Sell a Rental Without Writing the IRS a Check

Sep 28

Quick answer: A 1031 exchange lets you sell investment real estate and roll the entire gain into another investment property without paying capital gains tax now. The rules are unchanged for 2026: hire a qualified intermediary before you close, identify the replacement in writing within 45 days, close on it within 180 days, and buy equal or greater in value with all your equity reinvested and your debt replaced. Your own home doesn't qualify. Florida has no state income tax, so the federal bill is the only one you're deferring, but doc stamps still apply at closing. I've been through these with my own clients and can put you in front of the intermediary, CPA and attorney who make sure yours gets done right.

Every year I talk to a landlord who bought a house in Port St. Lucie or Stuart ten or fifteen years ago, has watched it double, and wants out of being a landlord or wants a bigger building. The first question is always the same: how much do I lose to taxes if I sell? The answer, if you do it wrong, is a lot. If you do it right, the answer can be nothing right now. That's what a 1031 exchange is.

What the deferral is actually worth

Say you bought a rental in 2016 for $200,000, you've taken about $50,000 in depreciation, and it sells today for $450,000. Your gain is roughly $300,000. Without an exchange, the federal government taxes that in layers: the $50,000 of depreciation comes back at up to 25 percent, the rest of the gain is taxed at 15 or 20 percent depending on your income, and if you're over $200,000 single or $250,000 married, the 3.8 percent net investment income tax sits on top of all of it. Before selling costs, and before your CPA sharpens the pencil, that's somewhere around $60,000 to $75,000 leaving the closing table. In a state with income tax it would be worse. Florida doesn't have one, which is part of why people exchange into here.

With a 1031, that money goes into the next property instead. It's a deferral, not forgiveness. The gain carries into the new property's basis and comes due when you eventually sell without exchanging. Most people do exactly that at some point. The National Association of REALTORS notes that as many as 88 percent of exchanges end in a taxable sale down the road. But the ones who keep exchanging, and then leave the property to their heirs, get a stepped-up basis at death under current law, and the deferred gain is never taxed. Investors call that swap till you drop.

The rules, in the order they'll bite you

Before closing	Hire a qualified intermediary (QI). The sale proceeds go from the closing table to the QI, never to you. If the money touches your account, even for a day, the exchange is dead. The QI can't be anyone who has been your agent, attorney, accountant or broker in the last two years. That includes me
Day 45	Identify the replacement property in writing, signed, delivered to the QI. You can name up to three properties of any value, or more than three if their combined value is under 200 percent of what you sold, or any number if you end up buying 95 percent of what you named. Most people use the three-property rule and name backups
Day 180	Close on the replacement. The 45 days sit inside the 180, and both run from the day your sale closes. Treat them as hard calendar-day deadlines. If your sale closes late in the year, your tax return due date can cut the 180 short unless you file an extension
Equal or up	To defer everything, the replacement must be equal or greater in price, you must reinvest all the net equity, and you must replace the debt you paid off or add cash to cover it. Any cash you take out, or any drop in debt, is "boot" and gets taxed. Taking on more debt does not offset cash you pull out
Same taxpayer	Whoever sold has to buy. Adding a spouse or a child to the title on the new property can blow up the exchange. Related-party deals carry a two-year holding requirement on both sides

A note on the QI, because it's the part people shrug at. Florida does not license qualified intermediaries as far as I can determine, which means anybody can call themselves one. Your entire sale proceeds sit in their account for up to six months. Ask about bonding, errors and omissions coverage, and whether your funds are held in a segregated account. Use a national firm or one your closing attorney has worked with. I have two I trust and I'll tell you who they are.

What qualifies, and what doesn't

Real property held for investment or used in a business. Rentals, duplexes and fourplexes, commercial buildings, warehouses, vacant land, a rental condo on Hutchinson Island, a strip center on US 1. "Like-kind" is broad for real estate: you can sell a single-family rental in Tradition and buy a fourplex in Fort Pierce, or sell a lot and buy a building. You can sell in New Jersey and buy in Florida, which is a conversation I have often (the New Jersey to Port St. Lucie guide covers the rest of that move). Foreign property is not like-kind with U.S. property. Interests in a Delaware Statutory Trust can be replacement property, which is how people exchange out of the landlord business entirely and into a passive share of an institutional building. REIT shares don't qualify.

Your primary residence does not qualify, and neither does a flip you bought to resell. A vacation home is a maybe. The IRS safe harbor says you have to own it for 24 months, rent it at fair value at least 14 days in each of those years, and keep your own use to the greater of 14 days or 10 percent of the rental days. If your Jensen Beach condo has been a real rental with a couple of personal weeks, it likely qualifies. If it's been your winter place with a rental or two, it probably doesn't.

Reverse and improvement exchanges

Sometimes the right building shows up before your sale closes. A reverse exchange lets you buy first, with an exchange accommodation titleholder holding the new property for you, and then sell within 180 days. An improvement exchange uses the same structure to let you put exchange money into construction or renovation on the replacement before you take title. Both work, both are more paperwork, and both cost more than a standard exchange. One national vendor puts reverse exchange fees at roughly $6,000 to $10,000 before closing costs and any bridge financing, and you'll need cash or a loan to buy the new property since your sale proceeds aren't in hand yet. Worth it for the right deal, not for a marginal one.

The long game: living in it later

A lot of people ask whether they can exchange into a house near the beach, rent it for a few years, then retire into it. Yes, carefully. It has to be a legitimate rental first, with the safe-harbor numbers above as a guide. If you later move in and eventually sell it as your home, the Section 121 exclusion ($250,000 single, $500,000 married) is available only after you've owned it at least five years, the exclusion gets reduced for the years it wasn't your residence, and the depreciation you took is never excluded. Your CPA needs to run that math before you commit, not after.

The Florida and Treasure Coast details

No state tax. Florida has no personal income tax and no state capital gains tax, so the federal bill is the whole picture. If you're selling up north and buying here, check whether your home state has a claw-back rule on deferred gain; a few do.
Doc stamps still apply. An exchange doesn't skip Florida's documentary stamp tax. The deed tax is 70 cents per $100 of price, customarily paid by the seller, and it's charged on exchanges too. A new mortgage on the replacement carries 35 cents per $100 plus a one-time intangible tax of 2 mills, customarily paid by the buyer.
Hurricanes and deadlines. When the IRS declares disaster relief for Florida counties, 1031 deadlines that fall inside the window get pushed, generally by at least 120 days. After Milton in October 2024, the IRS postponed deadlines statewide to May 1, 2025, including St. Lucie, Martin and Indian River. You have to notify your QI of the new dates in writing. Don't count on it, but know it exists.
45 days is short here. Good small multifamily and commercial in Stuart, Fort Pierce and Port St. Lucie moves fast, and there isn't much of it. The investors who do this well start shopping for the replacement before the relinquished property is under contract, and they name three properties on day 45, not one. If you're new to the area, Port St. Lucie vs. Stuart is a fair place to start figuring out where the rentals pencil.

Where these go wrong

The seller's attorney wires the proceeds to the seller, then everyone tries to fix it. It can't be fixed.
Day 45 arrives, one property was identified, and the deal falls through. Name backups.
The replacement is cheaper, or the owner pays off the old mortgage and doesn't replace the debt, and a surprise boot bill shows up at tax time.
The buyer adds a spouse to the new deed for estate reasons without asking anyone.
The QI is a guy with a website. Vet the intermediary the way you'd vet a bank.

Let's talk before you list

I've been through 1031 exchanges with my own clients, on both ends, and the pattern is always the same. The ones that go smoothly are the ones where the intermediary is hired before the listing goes live, the CPA has run the numbers on boot and depreciation, and the replacement search starts early. The ones that go badly are the ones where somebody called me on day 30. If you're thinking about selling an investment property anywhere on the Treasure Coast, or exchanging into one from out of state, call or text me first. I'm not your tax advisor and I won't pretend to be, but I've done these, I know which intermediaries and CPAs and closing attorneys do them right, and I'll put you in front of them so yours gets done right. Then I'll go find you the building.

Questions investors ask about 1031 exchanges

How long do I have to complete a 1031 exchange?

You have 45 days from the closing of your sale to identify replacement property in writing, and 180 days from that same closing to close on it. Both run at the same time and both are counted in calendar days. If your sale closes late in the year, your tax return due date can shorten the 180 unless you file an extension.

Can I do a 1031 exchange on my house or a vacation home?

Not your primary residence. A vacation home only qualifies if it has been a real rental: the IRS safe harbor requires 24 months of ownership, at least 14 days of fair-market rental in each of those years, and personal use of no more than 14 days or 10 percent of rental days, whichever is greater.

Do I still pay anything at closing on a 1031 exchange in Florida?

Yes. You defer the federal capital gains and depreciation recapture, but Florida's documentary stamp tax still applies, 70 cents per $100 on the deed and 35 cents per $100 plus intangible tax on any new mortgage. Florida has no state income tax, so there is no state capital gains bill to defer.

Did the 2025 tax law change 1031 exchanges?

No. Section 1031 was left out of the July 2025 federal tax law and remains intact for real property held for investment or business use. Proposals to cap the deferral have been floated in past federal budgets but none have passed as of 2026.

Talk with William. William has been through 1031 exchanges with his own clients, on both the selling and buying side. He can connect you with the qualified intermediary, CPA and closing attorney who do these right, then help you find the replacement property on the Treasure Coast. Call or text (772) 800-2274 or send a message.

General information, not legal, tax or financial advice. Tax rules and deadlines change and your situation is specific; confirm everything with your CPA, attorney and qualified intermediary before you act. William Merchant, REALTOR®, RE/MAX Gold. Each RE/MAX office is independently owned and operated.

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William Merchant