Thinking about selling an investment property in Miami and rolling the proceeds into your next deal without triggering federal capital gains tax right away? You are not alone. Many Miami investors use a 1031 like-kind exchange to keep capital at work while they reposition into stronger assets. In this guide, you will learn the basics, the strict deadlines, the local Miami considerations, and a step-by-step plan to move with confidence. Let’s dive in.
What a 1031 exchange does
A Section 1031 like-kind exchange lets you defer federal capital gains tax when you sell investment or business real estate and reinvest into other like-kind real estate. It is a tax deferral strategy, not a tax elimination. Your gain carries into the new property and becomes taxable when there is a later taxable sale.
For definitions, timelines, and examples, review the IRS overview of like-kind exchanges. You can find it here: IRS guidance on 1031 exchanges.
What qualifies in Miami
To qualify, the property you sell and the property you buy must both be real property held for investment or for use in a trade or business. That includes rental homes, apartment buildings, commercial properties, and investment land.
Property held primarily for sale, such as developer inventory, does not qualify. Your primary residence does not qualify unless you convert it to investment use and the facts support that change. The key test is intent and use.
Investment use and intent
There is no fixed holding period in the Code. The IRS and courts look at your intent and your facts. Many practitioners suggest holding at least 12 to 24 months to support investment intent. Documentation matters, so keep leases, advertising, income records, and management agreements organized.
Short-term rentals and condos
If you operate a vacation rental or short-term rental, it can qualify if it is held primarily for investment and not for personal use. Miami and Miami-Dade have evolving short-term rental rules, and many condo associations restrict rentals. Keep clear records of rental days, guest revenue, and marketing to show investment use, and confirm building and zoning compliance before you identify a condo as replacement property.
Deadlines you must hit
Two deadlines define most exchanges. They are strict and missing them usually kills the exchange.
- 45 days to identify your replacement property in writing after you close the sale of your relinquished property.
- 180 days to close on the replacement property after that sale.
You must use a qualified intermediary to hold sale proceeds so you do not take constructive receipt. The IRS explains these timing rules and the role of intermediaries in its like-kind exchanges guidance.
45-day identification
Within 45 calendar days of your sale, you must deliver a written, unambiguous identification of potential replacement property to your qualified intermediary. Use legal descriptions or precise street addresses. Keep proof of delivery.
180-day completion
You must close on the replacement property within 180 calendar days of the sale. If you are up against your tax filing deadline, ask your tax advisor about extensions so you preserve the full 180 days.
Identification rules at a glance
During the 45 days, you can identify using one of these rules. The Federation of Exchange Accommodators summarizes market practices and best practices for identification.
- 3-property rule: Identify up to three properties of any value.
- 200% rule: Identify any number of properties if their total value is not more than 200% of what you sold.
- 95% rule: If you exceed both above, you must acquire at least 95% of the total value you identified.
Exchange types you can use
Most Miami investors use a delayed exchange, but other formats can solve timing problems in a fast market.
Delayed exchange
This is the standard path. You sell first, your qualified intermediary holds the proceeds, you identify within 45 days, and you close within 180 days.
Reverse exchange
If you need to buy first to secure a high-demand property, a reverse exchange may fit. A specialized entity called an exchange accommodation titleholder temporarily holds title while you sell your relinquished property. Reverse exchanges are more complex and often costlier, and lenders may require special approvals.
Improvement exchange
If you want to buy a property and complete improvements during the exchange window, an improvement exchange can work. The improvements must be completed and the property received within 180 days. This format requires careful planning with an experienced qualified intermediary.
You can learn how the industry structures these formats through resources at the FEA/1031.org.
Taxes, basis, and boot
Even with a proper exchange, some proceeds can be taxable. Understand how cash, debt, and prior depreciation interact before you close.
Cash and mortgage boot
Any cash you receive is called boot and is generally taxable to the extent of your realized gain. Debt also matters. If the mortgage on your replacement property is less than the mortgage you paid off on the sale, that reduction in debt can be treated as mortgage boot. To avoid boot, many investors replace equal or greater value and equal or greater debt, or add cash to make up any difference.
Depreciation and NIIT
If you claimed depreciation deductions on the old property, a fully compliant exchange defers depreciation recapture. If you fail to replace value or you receive boot, some recapture can be triggered and taxed as ordinary income. Also note the 3.8% Net Investment Income Tax may still apply to certain investment income even when capital gain is deferred. Discuss these items with your CPA.
Foreign investors and FIRPTA
Miami attracts international capital. Foreign persons who dispose of U.S. real property interests are generally subject to withholding under FIRPTA. That withholding can complicate a 1031 exchange if funds are tied up. Review the IRS overview of FIRPTA rules and involve cross-border tax counsel early. Nonresident investors can use 1031 exchanges, but planning is essential so withholding and timelines do not conflict.
Financing and lender realities
Lenders are comfortable with standard delayed exchanges but may hesitate on reverse or improvement formats. Get lender buy-in early and line up written approvals for any entity that will hold title temporarily. Model your debt carefully to avoid mortgage boot. If you plan to upsize, be prepared to bring additional cash so your equity and debt levels meet exchange goals.
Miami-specific considerations
Florida has no state personal income tax. That means the primary income tax benefit of a 1031 exchange in Miami is at the federal level. You will still face Miami-Dade documentary stamp taxes, recording fees, and standard closing costs that influence your net cash and debt needs.
Condominiums may have rental caps, minimum lease terms, or investor restrictions that affect eligibility and financing. If your strategy involves short-term rentals, verify local ordinances and building rules. Miami’s market can move quickly at high price points, so consider whether a reverse exchange or back-up financing gives you the speed you need.
A simple step-by-step plan
Use this checklist to organize your exchange in Miami.
Pre-sale planning
- Speak with a CPA or tax attorney who handles 1031 exchanges.
- Decide on delayed, reverse, or improvement format based on your goals and timing.
- Interview and select a reputable qualified intermediary and confirm fees and insurance.
- Engage lenders early to confirm financing structure and timeline.
- If any party is foreign, coordinate FIRPTA planning from the start.
On sale of the relinquished property
- Close the sale with exchange documents in place and direct all proceeds to your QI.
- Start your 45-day identification clock.
During the 45-day identification period
- Identify candidate properties in writing to your QI using the 3-property, 200%, or 95% rule.
- Keep signed copies and proof of delivery.
By day 180
- Close on the replacement property. Confirm cash and debt satisfy your exchange plan to avoid boot.
After closing
- Update your records. Work with your tax professional to adjust basis and prepare tax filings.
Common mistakes to avoid
- Missing the 45-day or 180-day deadlines. These are hard deadlines.
- Touching the cash. Proceeds must flow to and from your qualified intermediary.
- Underestimating closing costs or Miami-Dade transfer taxes that change your equity and debt math.
- Weak documentation for short-term rentals or mixed-use that undermines investment intent.
- Selecting an inexperienced or under-insured intermediary for a reverse or improvement exchange.
For best practices and intermediary selection criteria, consult the FEA’s resources.
When to bring in the pros
Call in specialists when your deal involves foreign sellers or buyers, related parties, multiple mortgages, or any reverse or improvement structure. You will want an aligned team that includes a seasoned QI, a tax attorney or CPA, a lender who understands exchanges, and a broker who can source replacement options quickly and keep you on schedule.
Local scenarios to consider
- Delayed exchange example: You sell a long-term rental in Wynwood, identify a small apartment building in Little Havana within 45 days, and close within 180 days. If you replace value and debt, you defer federal gain.
- Reverse exchange example: You secure a South Beach condo first through an exchange accommodation titleholder, then sell your relinquished property within 180 days. This solves a timing gap in a competitive submarket.
- FIRPTA example: A nonresident owner sells a Miami rental. Withholding applies under FIRPTA, so tax and QI coordination is needed to keep funds available and the timeline intact.
The bottom line for Miami investors
A 1031 exchange can help you keep capital working in Miami while you trade into stronger assets, but success depends on planning. Know your deadlines. Use a qualified intermediary. Model cash and debt to avoid boot. Confirm condo and short-term rental rules. In a fast market, line up financing early so you can act within 45 and 180 days.
If you want an owner-led team to source deals, coordinate timelines, and support property or asset management once you close, our brokerage is ready to help. Start a conversation with Unknown Company to map your 1031 strategy in Miami.
FAQs
What is a 1031 exchange for Miami real estate investors?
- A 1031 exchange defers federal capital gains tax when you sell investment or business real estate and reinvest in like-kind real estate under IRS rules.
How strict are the 45-day and 180-day 1031 timelines?
- The IRS enforces both deadlines strictly, so missing either usually disqualifies the exchange.
Do short-term rental condos in Miami qualify for a 1031 exchange?
- They can qualify if held primarily for investment with documented rental activity and if you comply with building and local short-term rental rules.
What is boot in a 1031 exchange and why does it matter?
- Boot is cash or non-like property you receive, including certain reductions in mortgage debt, and it is generally taxable to the extent of gain.
Can a foreign investor in Miami use a 1031 exchange under FIRPTA?
- Yes, but FIRPTA withholding and cross-border rules add complexity, so early planning with specialized tax counsel is essential.
Does Florida’s tax structure change 1031 exchange benefits?
- Florida has no state personal income tax, so the main tax deferral benefit is federal, while local transfer taxes and fees still affect your numbers.
