1031 Exchange · Los Angeles Multifamily
A 1031 exchange lets you sell your Los Angeles apartment building and defer the capital gains tax by reinvesting the proceeds into replacement investment property. To qualify you must identify replacement property within 45 days of closing and complete the purchase within 180 days. Both clocks start the day your sale closes, they run on calendar days, and the IRS does not extend them. The Group CRE has closed more than $488 million in Los Angeles multifamily, and we run the sale and the replacement search as one coordinated timeline so the deadlines are never the thing that costs you the exchange.
The Two Deadlines
Day 1 is the day your relinquished property closes escrow. From that date you have 45 calendar days to formally identify your replacement property in writing to your qualified intermediary, and 180 calendar days to close on it. The 180-day period runs concurrently with the 45 days, not after it, so a missed identification window ends the exchange entirely.
Two details catch Los Angeles sellers most often. First, weekends and holidays count, and there is no extension if day 45 lands on a Sunday. Second, the deadline is the earlier of 180 days or the due date of your federal tax return for the year of the sale, including extensions. If you close in the fourth quarter, your filing date can arrive before day 180, and you will need to file an extension to preserve the full period.
Milestone | What has to happen |
|---|---|
Before closing | Engage a qualified intermediary. You cannot take receipt of the proceeds at any point, or the exchange fails. |
Day 1 | Your sale closes. Both the 45-day and 180-day clocks start on this date. |
Day 45 | Written identification of replacement property delivered to the intermediary. Calendar days, no extensions. |
Day 180 | Replacement purchase closes, or the tax return due date for the year of sale, whichever comes first. |
Identification Rules
You are not limited to a single target. The IRS gives you three identification options, and choosing the right one is the difference between a comfortable exchange and a forced purchase at day 44.
The three-property rule lets you identify up to three replacement properties of any value, and buy any one, two, or all three of them. This is what most Los Angeles apartment sellers use, because it gives you two backups if your first choice falls out of escrow.
The 200 percent rule lets you identify any number of properties, as long as their combined fair market value does not exceed 200 percent of what you sold. Useful when you are assembling several smaller buildings out of one larger sale.
The 95 percent rule lets you identify unlimited properties of any value, but you must actually close on at least 95 percent of the total value identified. It is rarely the right choice, because the penalty for a single failed escrow is the whole exchange.
To fully defer the tax, your replacement property generally needs to be equal or greater in value than the property you sold, and you need to reinvest all of the net proceeds. Buy cheaper, or pull cash out, and the difference is treated as boot and taxed.
The Los Angeles Wrinkle
No, and this is the single most expensive misunderstanding we correct for Los Angeles sellers. A 1031 exchange defers federal and state capital gains tax. Measure ULA is a transfer tax levied by the City of Los Angeles on the sale itself, and it applies whether or not the proceeds go into an exchange.
For transactions closing after June 30, 2026, ULA adds 4 percent on City of Los Angeles sales above $5.4 million, and 5.5 percent at or above $10.9 million. It applies from the first dollar of the sale price, not just the amount above the threshold, and it sits on top of the roughly 0.45 percent base city transfer tax. On a $6 million building, that is roughly $267,000 leaving the deal at closing, before your exchange even begins.
That changes exchange planning in two concrete ways. Your equity available for the replacement purchase is lower than a simple gains calculation suggests, so the replacement target has to be underwritten against the real net number. And if your building sits just above the $5.4 million line, the pricing and structuring decisions made before you go to market matter more than anything that happens after. Properties outside City of Los Angeles boundaries, including Santa Monica, Beverly Hills, West Hollywood, Long Beach, and Inglewood, are not subject to ULA at all.
The full breakdown of thresholds, rent control frameworks, and 2026 changes lives in our LA Multifamily Regulatory Guide.
How We Work
Most failed exchanges do not fail on the sale. They fail on the replacement side, when a seller reaches day 40 with nothing identified and buys something they would never have chosen with time to think. The fix is starting the replacement search before the relinquished property closes, not after.
We work the two sides in parallel. While your building is in escrow, we are already sourcing replacement candidates, including off-market inventory that never reaches the listing services, so that your identification list on day 45 is three properties you actually want rather than three you settled for.
We also model the exchange against the real numbers before you commit: the net proceeds after Measure ULA and closing costs, the debt you need to replace to avoid mortgage boot, and what current cap rates in your target submarkets mean for the income you will actually receive. If the exchange does not pencil, that is worth knowing before your sale closes and the clock starts.
We are brokers, not tax advisors or qualified intermediaries. We coordinate closely with your CPA and intermediary, and we will tell you plainly when a question belongs with them.
Taylor Avakian will walk you through your building's current value, the Measure ULA math, your real net proceeds, and what replacement inventory looks like in your target submarkets right now. No obligation.
Common Questions
What is a 1031 exchange?
A 1031 exchange, named for Section 1031 of the Internal Revenue Code, lets an investor sell real property held for investment or business use and defer the capital gains tax by reinvesting the proceeds into like-kind replacement property. The tax is deferred, not forgiven. It comes due when you eventually sell without exchanging, though heirs may receive a stepped-up basis. Since the 2017 tax law, only real property qualifies.
How long do I have to complete a 1031 exchange?
You have 45 calendar days from the closing of your sale to identify replacement property in writing, and 180 calendar days to close on it. The two periods run concurrently from the same start date. Weekends and holidays count, and the IRS does not grant extensions except in federally declared disaster areas or for qualifying military service. The 180-day period is also capped by your federal tax return due date for the year of the sale, including extensions.
Does a 1031 exchange avoid Measure ULA in Los Angeles?
No. A 1031 exchange defers capital gains tax, but Measure ULA is a City of Los Angeles transfer tax on the sale itself and applies regardless of whether you exchange. For closings after June 30, 2026, ULA is 4 percent on sales above $5.4 million and 5.5 percent at or above $10.9 million, applied from the first dollar. Cities outside Los Angeles, including Santa Monica, Beverly Hills, West Hollywood, Long Beach, and Inglewood, are not subject to ULA.
How many replacement properties can I identify?
Three rules apply. The three-property rule allows up to three properties of any value. The 200 percent rule allows any number of properties as long as their combined value does not exceed twice the value of what you sold. The 95 percent rule allows unlimited identifications but requires you to acquire at least 95 percent of the total value identified. Most Los Angeles apartment sellers use the three-property rule because it builds in two backups.
Can I do a 1031 exchange into a smaller property?
You can, but you will not defer the entire tax. To achieve full deferral, the replacement property should be equal or greater in value than the property sold, and all net proceeds must be reinvested. Any shortfall in value, or cash taken out, is treated as boot and is taxable in the year of the exchange. Reducing your debt without replacing it can also create mortgage boot.
Do I need a qualified intermediary?
Yes. You must engage a qualified intermediary before your sale closes, and you cannot take actual or constructive receipt of the sale proceeds at any point. If the funds touch your account, the exchange is disqualified and the full gain becomes taxable. The intermediary holds the proceeds and acquires the replacement property on your behalf. We coordinate with intermediaries on Los Angeles multifamily transactions regularly and can recommend several.
Can I 1031 exchange out of California into another state?
Yes, any United States real property held for investment is like-kind to any other, so a Los Angeles apartment building can be exchanged for property in another state. Be aware of California's claw-back provision: the state tracks deferred California-source gain and requires annual reporting on Form FTB 3840. When you eventually sell the out-of-state replacement in a taxable transaction, California will tax the originally deferred gain. Discuss this with your CPA before structuring an out-of-state exchange.
What happens if I miss the 45-day deadline?
The exchange fails and the entire gain becomes taxable in the year of the sale. There is no partial credit and no appeal for ordinary circumstances. This is why we begin the replacement property search while your building is still in escrow rather than waiting for it to close, and why the three-property identification rule is worth using even when you are confident in your first choice.
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