This guide is general information only and is not tax, legal or accounting advice. Rules change and every exchange has its own facts. Confirm your situation with a CPA or tax attorney and a qualified intermediary before you sell.
A 1031 exchange lets an investor sell one piece of investment or business real estate and buy another while deferring capital gains tax on the sale. It is named for Section 1031 of the Internal Revenue Code. Sacramento-area investors use it to move from one property type to another, to trade a management-heavy property for a net-lease building, or to consolidate several properties into one. Talha Torania, Director of Sales and Leasing at eXp Commercial, works with exchange buyers and sellers across the Sacramento region and coordinates the real estate side of the timeline with your intermediary and tax advisor.
What a 1031 Exchange Does
In an ordinary sale, the gain on a property is taxed in the year you sell. Under Section 1031, if you exchange real property held for productive use in a trade or business or for investment for other real property of like kind that you will also hold for business or investment, you do not recognize the gain at that time. The tax is deferred, not forgiven: your basis carries over to the replacement property, and the deferred gain can become taxable when you later sell without another exchange.
Since the Tax Cuts and Jobs Act took effect in 2018, Section 1031 applies only to real property. Equipment, vehicles and other personal property no longer qualify. Property held primarily for sale, such as lots a developer builds and sells, does not qualify, and neither does a personal residence.
What Counts as Like-Kind Real Estate
Like-kind refers to the nature of the property, not its grade or quality. Under IRS rules, real property held for investment or business use is generally like-kind to other real property held the same way. That means an investor can usually exchange:
- raw land for a retail building;
- an apartment or mixed-use property for an industrial building;
- an office building for a gas station property or other net-lease investment;
- one property for several, or several for one.
Real property in the United States is not like-kind to real property outside the United States. Your advisor should confirm that both the property you sell and the property you buy are held for investment or business use.
The Two Deadlines: 45 Days and 180 Days
Most exchanges are delayed exchanges: you sell first and buy later. Two deadlines run at the same time, both starting the day you transfer the property you are selling (the relinquished property):
- 45-day identification period. By midnight of the 45th day, you must identify potential replacement properties in a signed written document delivered to a party to the exchange, such as your qualified intermediary. Identification must be unambiguous, normally by legal description or street address.
- 180-day exchange period. You must receive the replacement property by the earlier of 180 days after the transfer or the due date, including extensions, of your tax return for the year of the sale.
These deadlines are counted in calendar days and are not extended for weekends or holidays. The IRS can extend them only in limited cases, such as presidentially declared disasters. Because the second deadline can be cut short by your return due date, a sale late in the year may need a filing extension to get the full 180 days. Ask your tax advisor.
Identification Rules
Treasury regulations limit how many properties you can identify within the 45 days. You generally must meet one of these tests:
- Three-property rule: identify up to three properties of any value.
- 200% rule: identify any number of properties, as long as their combined fair market value does not exceed 200% of the value of the property you sold.
- 95% exception: if you exceed both limits, you must actually acquire at least 95% of the value of everything you identified.
In practice, many Sacramento investors identify one primary property and one or two backups. The time to start looking is before you list, not after you close. Talha can show you current properties for sale and line up options that fit your price range and the 45-day window.
The Qualified Intermediary
In a delayed exchange, you cannot receive the sale proceeds or control them, even briefly. If you do, the exchange can fail. The usual solution is a qualified intermediary (QI), sometimes called an exchange accommodator. The QI enters into a written exchange agreement with you before the sale closes, holds the proceeds, and uses them to buy the replacement property for you.
Your own agent, attorney, accountant, broker or employee within the prior two years generally cannot serve as your QI, nor can certain related parties. Choose the QI before you open escrow on the sale, and make sure your escrow officer knows the transaction is an exchange.
Boot, Debt and Full Deferral
Anything you receive in the exchange that is not like-kind real property is called boot, and it is generally taxable. Boot can be cash you take out at closing or debt relief, when the mortgage on the property you sell is larger than the debt on the property you buy and you do not make up the difference. To defer all of the gain, investors generally buy replacement property of equal or greater value, reinvest all of the net proceeds, and replace any debt paid off with new debt or added cash. Your tax advisor can run the numbers for your situation.
Reporting the Exchange
Exchanges are reported to the IRS on Form 8824, Like-Kind Exchanges, with your return for the year you transfer the relinquished property. Exchanges between related parties carry extra rules, including a two-year holding requirement in many cases.
California Considerations
California generally follows the federal like-kind exchange rules. If you sell California property and buy replacement property outside California, the California Franchise Tax Board requires an annual information return, Form FTB 3840, so the state can track the deferred California gain until it is recognized. Ask your advisor whether that applies to you.
Common Sacramento Exchange Strategies
- Management-heavy to net-lease: owners of older multi-tenant or mixed-use property sometimes exchange into single-tenant net-lease buildings, including gas station and convenience store properties.
- Land to income: landowners in growth areas can exchange land into income-producing retail, office or industrial property. See Sacramento commercial land.
- Owner-user moves: a business that owns investment property can, with careful planning, exchange it for other investment property; property used by its own business may also qualify if held for business use. Confirm the details with your advisor.
- Consolidation or diversification: one larger asset can replace several smaller ones, or one property can be split into several in different cities or sectors.
Pricing context matters when you compare replacement properties. For example, Kidder Mathews reported an average Sacramento retail cap rate of 6.7% and an average sale price of $263 per square foot in Q3 2026. Read the full Sacramento commercial real estate market overview for office, retail and industrial figures.
Replacement Property Ideas From Current Listings
Inventory changes, and some properties are marketed confidentially. Examples of current listings that exchange buyers may review include:
- Leased downtown retail investment, 667-669 Plumas Street, Yuba City
- Arco ampm gas station and car wash, 4421 Florin Road, Sacramento
- Retail building, 9220-9222 Greenback Lane, Orangevale
- Freestanding commercial building, 8107 West Lane, Stockton
- Off-market mixed-use property with 10 residential units and one commercial unit
See all current properties for sale and lease.
How Talha Helps With Exchanges
Talha Torania has more than 10 years of commercial real estate experience and over $1 billion in transactions. On an exchange, he helps you price and market the property you are selling, search for replacement properties before the clock starts, schedule tours and due diligence so identification and closing deadlines stay realistic, and keep your qualified intermediary, escrow and tax advisor informed. Learn more on our 1031 tax-free exchange services page and our brokerage services.
Exchange buyers also look across the region. See our pages for Roseville, Elk Grove, Rancho Cordova, West Sacramento and Stockton.
Frequently Asked Questions
How long do I have to identify replacement property in a 1031 exchange?
You must identify potential replacement properties in writing within 45 days after you transfer the property you sell. This is general information, not tax advice.
How long do I have to close on the replacement property?
You must receive the replacement property by the earlier of 180 days after the sale or the due date, including extensions, of your tax return for the year of the sale.
Do I need a qualified intermediary?
In a delayed exchange, you cannot receive or control the sale proceeds. Investors generally use a qualified intermediary, who holds the funds and acquires the replacement property under a written exchange agreement.
Can I exchange land for a commercial building?
Generally yes. Real property held for investment or business use is generally like-kind to other such real property in the United States, so land can be exchanged for a retail, office or industrial building.
Is a 1031 exchange tax-free?
It defers tax rather than eliminating it. Cash or debt relief you receive (boot) is generally taxable. Talk with your tax advisor about your situation.
Can you help me find replacement property in Sacramento?
Yes. Talha Torania can show you current listings and help line up options that fit your 45-day identification window. Call (916) 346-9758.
Plan Your Exchange
Call Talha at (916) 346-9758, email saccommercials@gmail.com, or contact us online. Browse current listings.
eXp Commercial · Talha Torania, Director of Sales and Leasing · DRE #02056948
Sources: IRS, Like-Kind Exchanges Under IRC Section 1031 (FS-2008-18) and Form 8824 instructions; Treasury Regulation §1.1031(k)-1; California Franchise Tax Board Form 3840. Not tax advice.