Question 1

What is a 1031 exchange, in plain English?

Accepted Answer

A 1031 exchange lets you sell investment real estate and buy replacement real estate without paying capital gains tax now. The tax is deferred, not erased — it rolls into the new property. You must follow strict rules: a qualified intermediary holds the money, and you face 45-day and 180-day deadlines.

Question 2

Can farmland be a replacement property in a 1031 exchange?

Accepted Answer

Yes. For real property, "like-kind" is broad — any U.S. investment real estate can exchange into any other. A rental duplex, an office condo, or an apartment building can roll into a vineyard, orchard, ranch, or row-crop farm. Turnrow closes ag purchases in 2–4 weeks, comfortably inside the 180-day window.

Question 3

How does the 45-day identification rule work?

Accepted Answer

You have 45 calendar days from closing your sale to identify replacement property in writing to your qualified intermediary. You can identify under three methods: up to 3 properties of any value, any number totaling up to 200% of what you sold, or acquire 95% of everything you named.

Question 4

What is the 180-day rule, and do the deadlines ever extend?

Accepted Answer

You must close on your replacement property within 180 calendar days of selling your relinquished property — or by your tax return due date, if earlier. Neither the 45-day nor 180-day deadline extends for weekends or holidays. If day 180 is a Saturday, you close by Friday.

Question 5

What is boot, and how do I avoid paying tax on it?

Accepted Answer

Boot is anything you receive in an exchange that is not like-kind real estate — leftover cash, or debt relief you do not replace. Boot is taxable up to your total gain. To fully defer, buy replacement property of equal or greater value and reinvest all the equity.

Question 6

Do I have to replace the debt on the property I sold, not just the equity?

Accepted Answer

Effectively yes. To fully defer, your replacement property's price must equal or exceed what you sold, and debt paid off at sale must be offset by new debt or fresh cash on the purchase. Sell a farm with a $400,000 mortgage and either borrow $400,000+ on the new one or bring that much new cash.

Question 7

What is a qualified intermediary, and why can't I just hold the money myself?

Accepted Answer

A qualified intermediary (QI) is the independent third party that holds your sale proceeds and papers the exchange. If you touch the money — even for a day, even in escrow you control — the IRS treats the sale as taxable and the exchange is dead. The QI must be engaged before your sale closes.

Question 8

Can I 1031 out of a rental house into a vineyard?

Accepted Answer

Yes. A rental house held for investment is like-kind to a vineyard held for investment — both are U.S. real property. Many of the smoothest ag exchanges we see are landlords leaving residential rentals for farmland. The vineyard must be an investment or business asset, not a hobby homestead you occupy.

Question 9

What is a reverse 1031 exchange?

Accepted Answer

A reverse exchange buys the replacement property first and sells your old property afterward. Since you cannot hold title to both, an exchange accommodation titleholder "parks" the new property for up to 180 days while you sell. It works, but costs more and demands financing without your sale proceeds in hand.

Question 10

How does an improvement (build-to-suit) exchange work?

Accepted Answer

An improvement exchange lets you use exchange funds to buy land and build on it — irrigation, trellising, barns, even planting. An accommodation titleholder holds the property while improvements are constructed, and only work completed within the 180-day window counts toward your exchange value.

Question 11

What happens if my financing falls through in the middle of the exchange window?

Accepted Answer

If you cannot close by day 180, the exchange fails and your full gain becomes taxable — the IRS grants no extension because a lender withdrew. This is the classic exchange killer. The fix is speed: Turnrow issues term sheets in 24–48 hours and closes in 2–4 weeks, viable even at day 150.

Question 12

Can I do a 1031 exchange with a related party, like buying my brother's farm?

Accepted Answer

Yes, but under a two-year holding rule: if either you or the related party disposes of their exchanged property within two years, both exchanges are retroactively taxable. Buying replacement property from a related party who cashes out is the riskiest pattern and draws direct IRS scrutiny.

Question 13

Do states honor 1031 exchanges, or can my old state still tax me?

Accepted Answer

Most states follow federal 1031 treatment, but several — California most aggressively — impose clawback rules: exchange out of California land and the state tracks the deferred gain forever, taxing its share whenever you finally sell for cash. California requires an annual filing (Form 3840) to keep the tail alive.

Question 14

Does a 1031 exchange actually make sense, or should I just pay the tax?

Accepted Answer

Exchange when the deferred tax is large and you intend to stay in real estate; pay the tax when the gain is small, you want liquidity, or the deadlines would force you into a mediocre property. Rough threshold: combined tax under about $50,000 often is not worth the constraint.

1031 Exchanges