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1031 Exchange

2. 1031 Exchange Basics: Everything a Beginner Needs to Know

If you're looking to grow your real estate portfolio while keeping more of your profits working for you, then a 1031 Exchange is a strategy you can’t afford to ignore.

In Part 2 of our 10-part series, we’re breaking down the core principles of a 1031 Exchange—what it is, how it works, and why investors all over Brooklyn and beyond are using it to build wealth smarter and faster.

 What Is a 1031 Exchange?

A 1031 Exchange, named after Section 1031 of the IRS tax code, allows real estate investors to sell an investment or business-use property and reinvest the proceeds into another similar property—without paying capital gains taxes immediately.

This means you can roll your entire profit forward—tax-deferred—into your next purchase.

Here’s a simplified breakdown of the process:

  1. Sell your investment property.

  2. Identify your replacement property within 45 days.

  3. Close on the new property within 180 days.

  4. Use a Qualified Intermediary (QI) to hold your proceeds during the exchange.

  5. Defer your capital gains taxes as long as you reinvest into another qualifying “like-kind” property.

 Why Investors Love It

According to The New York Times, investors who use 1031s can delay their tax payments for decades—while continually scaling into bigger, better-performing properties.

The Wall Street Journal calls it a “cornerstone” strategy for portfolio growth, especially in competitive urban markets like Brooklyn and Manhattan, where capital gains can be substantial.

And The Real Deal routinely covers how top New York developers leverage 1031 Exchanges to shift capital into new developments, commercial conversions, and higher-value assets—without hitting pause for tax payments.

 What Does “Like-Kind” Mean?

One of the most misunderstood parts of 1031s is the term “like-kind.”
It does not mean identical.

You don’t have to exchange a rental house for another rental house.

According to IRS rules:

  • You can exchange a condo for a multi-family building

  • Retail space for vacant land

  • Even a warehouse for a mixed-use property

As long as both the sold and purchased properties are held for investment or business use, the IRS considers them “like-kind.”

 Know Before You Start

Before you initiate a 1031 Exchange, you’ll need:

  • A Qualified Intermediary (QI)

  • A plan for reinvestment

  • Clear timelines and property criteria

  • The intent to hold the new property for investment—not flip or move in

We'll cover each of these in depth throughout the rest of the series.

 Ready to Explore a 1031 for Your Property?

At Pen Realty, we help Brooklyn real estate investors—first-time and seasoned alike—use 1031 Exchanges to build smart, tax-efficient portfolios.

📍 Have a property you're thinking of selling? Let’s run the numbers.

👉 Email: [email protected]
📞 Call/Text: 917.916.5126
▶️ Follow the video series on YouTube: @pmpenrealty


Next up in the series: “1031 Exchange Timelines: Don’t Miss These 2 Critical Deadlines

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