Section 1031 of the Internal Revenue Code allows you to defer (not eliminate) capital-gains tax when you sell investment real estate AND buy replacement investment real estate, under strict timing and structural rules. The replacement property is treated as a continuation of the original investment for tax purposes, so the gain rolls forward.

The tax-deferred gain stays deferred until you sell without exchanging — at which point all the accumulated deferred gain is recognized. Investors commonly chain exchanges for decades, then either hold until death (stepped-up basis) or take a moderate one-time tax hit on a final sale.

1031 only applies to "real property held for productive use in trade or business or for investment." Translation: rental property and commercial. Not primary residences. Not flips (those are inventory, not investment property).

The IRS gives you exactly two deadlines from the day you close on the sale of the relinquished property:

• 45-day identification period: you must identify the replacement property (or properties) in writing to your Qualified Intermediary by midnight of day 45. No extensions, no weekend rolls. If day 45 is a Saturday, the deadline is still Saturday.
• 180-day exchange period: you must close on the replacement property by midnight of day 180. Again, no extensions.
• These run concurrently. The 45-day deadline lives inside the 180-day deadline. So you have 45 days to pick the property and 135 more days to close on it.
• The Qualified Intermediary (QI) is mandatory. Set one up BEFORE you close on the relinquished sale. If sale proceeds touch your bank account at any point - even briefly - the 1031 is dead and the full gain is taxable.

To fully defer all capital gains, your replacement property must satisfy three conditions:

• Equal or greater purchase price (relative to the relinquished sale price)
• Equal or greater equity invested (you cannot take cash out at exchange)
• Equal or greater debt on the replacement (or compensate with extra equity)

This is the rule that surprises most first-time exchangers. If your relinquished property had $200,000 of debt on it, and you replace into a property with only $150,000 of debt, the $50,000 difference is "mortgage boot" — taxable as if you took $50,000 cash out, even if you never received cash.

There are two ways to satisfy the rule: (1) take on at least equal debt on the replacement, or (2) make up the difference with additional equity from outside the exchange.

DSCR loans handle this elegantly. Because DSCR qualification is property-based, not income-based, you can size the new DSCR loan to exactly match (or exceed) the debt on the relinquished property. That removes any mortgage boot, fully defers the gain, and gives you a clean 30-year fixed loan on the replacement.

Practical example: relinquished property sold at $350k with $200k debt and $150k equity. You buy a $400k replacement and size the DSCR loan at $225k (an increase, satisfying equal-or-greater debt). You add $175k of exchange equity. The $25k extra you add comes from outside the 1031 (your own funds) and is treated as a fresh basis addition. Full deferral, clean structure.

The standard sequence:

• Day -30: engage a Qualified Intermediary. Get the contract addendum templates from them.
• Day 0: close the sale of the relinquished property. Proceeds go to the QI, not to you.
• Day 0-45: identify replacement property in writing to QI. Most exchangers use the "three-property rule" — identify up to 3 candidates regardless of value.
• Day 30-45: get under contract on the replacement; apply for DSCR financing. We can start the DSCR app, order title, and pre-qualify the appraisal while the 1031 is still in the identification window.
• Day 60-90: appraisal back, DSCR underwriting complete, clear-to-close.
• Day 90-150: close. QI wires the exchange equity to the closing table; DSCR loan funds wire to the closing table; you take title (in your name or your LLC).

The 1031 must be in the same taxpayer name. If you sold a property held in "Atlantic Coast Holdings LLC" (a single-member disregarded entity for tax purposes), the replacement must be acquired by either Atlantic Coast Holdings LLC or by you personally (as the disregarded owner). Cannot drop into a different LLC mid-exchange.

If you want to clean up your entity structure, do it BEFORE the relinquished sale or AFTER the replacement close. Not during.

DSCR loans accept either name on the replacement. We close in LLC name or personal name based on what your CPA/attorney advises for the 1031 continuity.