Selling a high-value rental or multifamily in Congress Park or the 7th Ave Historic District can trigger a large tax bill. If you plan to reinvest, a 1031 exchange may help you keep more capital working for you. In this guide, you will learn the core 1031 rules, Denver-specific factors to consider, and a clear action plan to move from sale to successful acquisition on time. Let’s dive in.
This article provides general information only. For personalized tax advice, consult a qualified CPA or tax attorney.
What is a 1031 exchange
A 1031 exchange allows you to defer capital gains taxes when you sell real property held for investment or business use and buy other U.S. real property of like kind. The authority comes from Section 1031 of the Internal Revenue Code and is explained in IRS like-kind exchange guidance.
The goal is tax deferral, not elimination. You defer gain into the replacement property. If you later sell in a taxable sale, the deferred gain is recognized unless you complete another exchange or use other strategies with your advisors.
Like-kind property basics
- Real property for real property qualifies. Most U.S. real estate is like kind with other U.S. real estate, including vacant land, single-family rentals, multifamily, and commercial.
- Personal property does not qualify under current rules. Foreign real estate is not like kind with U.S. real estate for most taxpayers.
- The property you sell and buy must be held for investment or productive use in a trade or business. A primary residence used mainly for personal purposes does not qualify.
The 45/180 timeline
Two strict federal deadlines run from the day your sale closes.
- Identification deadline: 45 calendar days to identify replacement property in writing.
- Exchange completion deadline: 180 calendar days to acquire the replacement property.
A simple view of the timeline:
Day 0: Sale of relinquished property closes
Days 1–45: Identify replacement property in writing
Days 1–180: Close on replacement property and complete exchange
If your tax return is due before day 180, filing an extension can preserve the full window. The IRS treats these as hard calendar-day deadlines.
Identification rules
Your written identification must be specific and delivered to the Qualified Intermediary (QI) or other party named in your exchange agreement. You can use one of these rules:
- Three-property rule: Identify up to three properties of any value.
- 200% rule: Identify any number of properties as long as total value does not exceed 200% of what you sold.
- 95% rule: If you identify more than allowed and exceed 200%, you must acquire at least 95% of the total value identified.
Use full addresses or legal descriptions so your list is unambiguous.
Cash, debt and boot
Any cash you receive or reduction in your mortgage liability that you do not replace can be taxable as boot. To fully defer gain, you typically need to:
- Reinvest all net proceeds, and
- Replace equal or greater debt on the new property, or add cash to offset any debt shortfall.
Your basis in the replacement property is adjusted under 1031 rules. Because financing choices affect tax outcomes, coordinate early with your CPA and lender.
Local factors to weigh
Denver’s local framework can shape your replacement strategy, especially for 7th Ave Historic District properties and Congress Park multifamily.
- Historic district limits: Exterior changes, demolitions, and additions in the 7th Ave Historic District may require preservation review. This matters if you plan an improvement exchange. Review the Denver Historic Preservation program.
- Zoning and use: Density, use, and conversion rules vary by zone. Confirm feasibility for any planned changes by checking Denver zoning maps and use tables.
- Short-term rental rules: If you intend to use a replacement as a short-term rental, confirm the City of Denver’s regulations and licensing to ensure the property remains a qualifying investment use.
Congress Park example
Imagine you own an 8-unit luxury rental in Congress Park held for investment. You decide to sell and exchange into a newer multifamily asset elsewhere in Denver.
- Before closing, you engage a QI and instruct escrow to send sale proceeds to the QI at closing.
- Within 45 days after your sale closes, you identify up to three replacement buildings that fit your goals, with clear addresses.
- By day 180, you complete due diligence, secure financing that satisfies your debt replacement needs, and close on the chosen property.
This sequence keeps you aligned with the federal timeline while you reposition your portfolio.
Step-by-step checklist
Follow this practical framework and confirm details with your advisors:
Confirm eligibility
- Ensure the property was held for investment or business use.
- Verify that the same taxpayer sells and buys, or structure appropriately.
Run a preliminary tax analysis
- Estimate potential gain and deferral benefits.
- Consider long-term plans, including estate planning and basis step-up.
Engage key professionals early
- CPA or tax attorney with 1031 experience.
- Qualified Intermediary engaged before your sale closes.
- Local broker experienced with 1031 transactions and Denver neighborhoods.
Execute the sale with a QI
- Include exchange language and direct proceeds to the QI at closing.
- Sign the written exchange agreement before closing.
Identify by day 45
- Use the three-property, 200% or 95% rule.
- Deliver a clear, written list to your QI.
Acquire by day 180
- Complete inspections, financing, and closing.
- Reinvest all proceeds and replace debt to avoid boot.
Document and report
- Retain all contracts, notices, and closing statements.
- File IRS Form 8824 for the year of the exchange.
Post-exchange planning
- Track related-party rules and future sale options.
- Evaluate whether future exchanges support your strategy.
For general guidance, the IRS provides helpful summaries on like-kind exchanges.
Common pitfalls
- Receiving or controlling sale proceeds before a QI is in place.
- Missing the calendar-day 45 or 180 deadlines.
- Vague or incomplete property identification.
- Reducing net debt without adding cash, creating unexpected boot.
- Related-party transfers that trigger early gain recognition.
- Selecting a QI without proper controls or bonding.
- Attempting improvement projects that cannot be completed within 180 days.
- Exchanging property held primarily for resale.
To evaluate QI professionalism and standards, consult the Federation of Exchange Accommodators.
Tax considerations
High-income sellers can face a 20% federal long-term capital gains rate, and some are subject to the 3.8% Net Investment Income Tax on investment income. Colorado also taxes gains at the state level. For current state guidance, review the Colorado Department of Revenue.
Deferral can be powerful, but it should align with your broader plan. Consider timing, legacy goals, and the potential step-up in basis for heirs when you evaluate a 1031 with your advisors.
How Kelli Barton can help
When precision matters, a marketing-led sale and white-glove coordination keep your exchange on track. You get:
- Strategic listing prep and premium exposure to maximize proceeds for reinvestment.
- Concierge transaction management that coordinates timeline, documentation, and closing details with your chosen QI, lender, and title team.
- Deep neighborhood expertise in Congress Park, the 7th Ave Historic District, and nearby luxury corridors to help you line up viable replacement options quickly within the 45-day window.
Ready to explore a sale and 1031 game plan tailored to your goals in central Denver? Connect with Kelli Barton for a confidential conversation. Receive Exclusive Listings in Your Inbox.
FAQs
What is a 1031 exchange for Denver sellers
- A 1031 lets you defer taxes by selling investment real estate and buying like-kind U.S. real estate under strict IRS timelines and identification rules.
How strict are the 45 and 180-day deadlines
- They are hard calendar-day deadlines that start the day your sale closes, with the 45-day window nested inside the 180-day period.
Can I use a 1031 for my primary residence
- No, both the relinquished and replacement properties must be held for investment or business use, not primarily for personal residence.
Do historic rules affect 7th Ave replacements
- The exchange rules are federal, but 7th Ave Historic District design reviews can impact renovation or improvement exchange plans, so check Denver’s preservation program.
How do I report a completed exchange to the IRS
- File IRS Form 8824 with your tax return for the year of the exchange and keep thorough documentation for your records.
Do I need to match the same mortgage amount
- To fully defer gain, you generally must replace equal or greater debt or add cash so you do not receive taxable boot.
