Miss the 45‑day ID window by a single day and your 1031 exchange can fail. In Marin’s fast, high‑value market, you do not want to learn that lesson the hard way. Whether you are buying into Marin or selling here and buying elsewhere, your plan needs clear deadlines, the California reporting “wrinkle,” and a tight execution team. This playbook breaks down the rules, local costs, and step‑by‑step moves so you can exchange with confidence. Let’s dive in.
1031 essentials you must know
A Section 1031 exchange lets you defer gain when you swap real property held for business or investment for other like‑kind real property. You report the exchange on IRS Form 8824 and follow two strict timing rules: identify replacement property in writing within 45 days and receive it within 180 days or by your return due date if earlier. These deadlines are strictly enforced. See the IRS instructions for full timing and reporting details: Instructions for Form 8824.
The Tax Cuts and Jobs Act limits 1031 to real property. Personal property no longer qualifies. In practice, that means you focus only on U.S. real estate used for investment or in a trade or business.
California’s wrinkle when moving out of Marin
If you exchange a Marin property for out‑of‑state replacement and defer gain, California will track that deferred California‑source gain. You generally must file Form FTB 3840 for the year of the exchange and each year after until the gain is recognized. Plan for the filing and possible California tax later. Review the state’s guidance here: FTB 3840 and reporting like‑kind exchanges.
How exchanges are structured
Most common: delayed exchange
You sell your relinquished property, a Qualified Intermediary (QI) holds the proceeds, and you acquire the replacement property within 45/180 days. You cannot touch or control the funds. The IRS explains the safe‑harbor approach in the Form 8824 instructions.
Reverse and improvement options
- Reverse exchange. You acquire the replacement first using a parking arrangement with an Exchange Accommodation Titleholder. It is more complex and costlier, but it can solve timing issues when Marin inventory is tight.
- Improvement exchange. If you plan to build or improve the replacement before you take title, your accommodator holds the property and pays for improvements under a qualified arrangement. This structure is specialized and time sensitive.
Replacement property choices
- Traditional fee‑simple real property in the U.S. generally qualifies as like‑kind.
- Delaware Statutory Trusts (DSTs) can qualify as replacement property if they meet IRS limits. DSTs can speed closings and provide passive ownership, but they are illiquid and sponsor‑managed. Read sponsor documents carefully and involve your tax advisor.
Why your QI selection matters
Your QI must be independent and have strong controls. Weak procedures or letting funds touch your account can collapse the exchange. For due diligence criteria and risk factors, see this overview on selecting a Qualified Intermediary.
Marin‑specific planning points
Market reality and timing
Marin remains a high‑value, low‑inventory Bay Area market, with recent county data showing elevated price levels. Low supply and strong demand can compress your search window and make backup IDs essential. For current statewide context, review the California Association of Realtors’ market updates, such as the March 2025 sales report.
Transfer taxes and recording fees
Budget Marin County’s Documentary Transfer Tax at $0.55 per $500 of consideration. Some cities add their own tax; for example, San Rafael adds $2.00 per $1,000. Also plan for routine recorder fees and the SB2 fee. Confirm current rates with the county: Marin County Recorder fees.
Local rules can affect your plan
Zoning, coastal rules, wildfire mapping, and septic versus sewer can shape post‑closing plans and timelines. Projects that need permits can take longer, which is critical if you hope to improve property soon after an exchange. Expect timelines to vary by city and unincorporated areas across Marin.
Your step‑by‑step playbook
Pre‑sale planning
- Build your team early. Engage a CPA or tax advisor who understands 1031 and California reporting, a reputable QI, a Marin‑savvy broker, and a real estate attorney.
- Run the numbers. Estimate gain, any potential depreciation recapture, and debt replacement needs. Decide if a partial exchange with some cash “boot,” a DST, or multiple properties fits your goals.
- Map your ID strategy. Use the three‑property, 200 percent, or 95 percent rules. In a tight Marin market, identify backups to protect your timeline.
Execute the exchange cleanly
- Lock in your QI before closing. All proceeds must flow to the QI, not to you. Confirm wire procedures and escrow instructions in writing. See this piece on vetting a QI.
- Calendar the deadlines. Deliver your written identification within 45 days of the transfer and close on the replacement within 180 days or by your return due date if earlier. The IRS details both rules in the Form 8824 instructions.
- Line up financing early. Appraisals and loan underwriting can eat into the 180‑day window.
If you are buying in Marin
- Leave room for permitting and inspections. Coastal, wildfire, or septic reviews can lengthen schedules. If you need improvements before you take title, talk to your team about an improvement exchange structure.
- Budget local transfer taxes and recorder fees. Confirm the total using official county schedules: Marin County Recorder fees.
If you are selling in Marin and buying elsewhere
- Plan for FTB 3840. If you defer California‑source gain by purchasing out of state, you generally must file California Form FTB 3840 for the exchange year and each year until you recognize the deferred gain. Start a tracking file for allocations across replacement properties. Details here: FTB 3840 and reporting like‑kind exchanges.
Common pitfalls to avoid
- Touching the money. If proceeds hit your account or you control them, the exchange can fail.
- Missing 45/180. There are almost no deadline extensions outside disaster relief. Track the earlier of 180 days or your tax return due date with extensions.
- Choosing a weak QI. Insist on clear custody controls, insurance, and references.
- Ignoring California follow‑up filings. If you exchange out of state, FTB 3840 is not optional.
- Assuming all replacements are equal. DSTs and improved property structures solve timing but come with tradeoffs. Do careful due diligence.
Quick checklist
- Assemble CPA, QI, Marin broker, and attorney before listing.
- Precompute gain, recapture exposure, and debt replacement needs.
- Choose your ID rule and line up backups.
- Put QI documents in place before closing and route all funds through the QI.
- Calendar day 45 and day 180 against your tax filing date.
- Budget Marin transfer taxes, any city add‑ons, SB2, and recorder fees.
- If buying out of state, set reminders for annual FTB 3840 filings.
Ready to explore your exchange options in Marin or beyond? Tap our local experience, tight vendor network, and detail‑driven process to keep your 1031 on track from the first call to the closing table. Reach out to Christina & Karla to start a plan that fits your goals and timeline.
FAQs
If I sell a Marin rental and buy in Texas, do I still owe California tax later?
- If you defer California‑source gain by exchanging into out‑of‑state property, California requires Form FTB 3840 and tracks the deferred gain, which may be taxed when recognized later. See FTB 3840 guidance.
Can I 1031 into a Delaware Statutory Trust instead of another building?
- Yes, certain DST interests qualify as like‑kind replacement property if they meet the limits in IRS Revenue Ruling 2004‑86. DSTs are passive and often illiquid, so review sponsor documents with your tax advisor.
What are the biggest timing traps in a 1031 exchange?
- Missing the 45‑day written identification or the 180‑day acquisition deadline usually kills deferral. Also watch if your tax return due date falls before day 180. See the IRS instructions for Form 8824.
Will I owe tax on depreciation recapture after a 1031 exchange?
- A proper 1031 defers recognition, including recapture, but does not eliminate it. When you sell outside a 1031, prior depreciation can be taxed as unrecaptured Section 1250 gain up to 25 percent. See IRS Publication 544.
How much will Marin transfer taxes and fees add to my closing costs?
- Marin County charges $0.55 per $500 of consideration, and some cities, like San Rafael, add their own tax. Also budget recorder fees and the SB2 charge. Check current schedules here: Marin County Recorder fees.
