What is a 1031 exchange and how does it defer tax?

A 1031 exchange, named for Internal Revenue Code Section 1031, lets you sell an investment or business real-estate property and reinvest the proceeds in a like-kind replacement property without recognizing the capital gain in the year of sale. The tax isn't forgiven — it's deferred, with your basis carrying over to the new property until you eventually sell without exchanging.

Does Florida have its own tax on a 1031 exchange?

No. Florida has no state personal income tax and no state capital gains tax, so the only tax a 1031 exchange defers for most Florida individual investors is federal — including the 15% or 20% long-term capital gains rate, the 25% maximum rate on unrecaptured depreciation, and the 3.8% net investment income tax where it applies.

What property qualifies for a 1031 exchange?

Since the 2017 Tax Cuts and Jobs Act, only real property held for productive use in a trade or business or for investment qualifies. Real estate is broadly like-kind to other U.S. real estate — a rental condo can be exchanged for raw land, an office building, or a strip mall. Your primary residence, property held mainly for resale, and personal property no longer qualify.

Why do I need a qualified intermediary?

If you take actual or constructive receipt of the sale proceeds, the exchange fails and the entire gain becomes taxable. A qualified intermediary holds the funds between the sale and the purchase so you never touch them, and prepares the exchange documents. Using one is effectively mandatory for a deferred exchange.

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Florida 1031 Exchange

The Florida 1031 Exchange: A Real-Estate Investor's Guide to Deferring Capital Gains

A 1031 like-kind exchange lets a Florida real-estate investor roll the full pre-tax proceeds of a sold property into a new one — deferring capital gains tax and depreciation recapture indefinitely. The rules are strict, but the leverage is enormous.

SMAART Tax Team

February 10, 2026

6 min read

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