1031 Exchange Guide: Key Updates and Financing Tips for Investors

Section 1031 of the IRS code allows real estate investors to defer capital gains taxes on the sale of property by reinvesting the proceeds into similar “like-kind” properties. However, a recent IRS ruling has clarified how investors can use exchange proceeds to improve replacement properties while still qualifying under Section 1031.

Key Updates to Like-Kind Exchanges

One key update to like-kind exchanges specifies that construction-in-progress can now be included in the exchange value, even if the improvements are not fully completed within the 180-day exchange window. This is permitted as long as certain milestones are met, and investors demonstrate intent to complete the improvements in a timely manner.

Additionally, Section 1031 has introduced “parking arrangements,” which further expand the benefits of the exchange process. This provision allows the Exchange Accommodation Titleholder (EAT) to hold title to the replacement property. As long as the investor follows the proper exchange protocols, the parking arrangement can qualify as a valid like-kind exchange under Section 1031.

The parking arrangement offers more flexibility, allowing partial improvements to be made to the replacement property and those improvements to be included in the exchange value. It also allows the taxpayer to acquire a replacement property before selling the relinquished property, providing more options and reducing the timing pressures of the exchange process.

Financing Options for 1031 Exchanges

Many investors face challenges in securing financing for 1031 exchanges. Some have turned to short-term bridge loans or private loans to complete their exchanges. At Pacific Direct Mortgage, we specialize in providing quick and flexible financing solutions for real estate investors. Whether you’re looking to bridge the gap in your exchange or need private financing for your next California property investment, we are here to help. 

Husband & Wife Team
Phone: 707‑708‑0797 / Office: 1400 N. Dutton Ave #22 Santa Rosa, CA 95401
Ken: CA DRE Broker #01858042 / NMLS #1221130
Ari: CA DRE #01858152 / NMLS #2170867

Ken & Ari are a husband & wife team with combined 3+ decades in real estate and private money industries. They own Pacific Direct Mortgage & Real Estate, specializing in Private Money loans (also known as Hard Money home loans). Having helped thousands of Borrowers & working directly with Brokers, Agents and Lenders to help when needed with fast, flexible, alternative financing for real estate purchases and refinances throughout California. No issues with DTI ratios, credit issues, property condition, difficult to prove income ‑ we want to help!