Thinking about trading up your Miami Shores rental without a big tax hit? If you own investment property in Miami-Dade, a properly structured 1031 exchange can defer federal capital gains when you sell and buy again. The process has strict rules and timelines, but with planning, you can move capital into better-performing assets. This guide breaks down key deadlines, identification rules, local considerations, and practical Miami Shores scenarios so you can execute confidently. Let’s dive in.
1031 exchange basics
A 1031 exchange comes from Section 1031 of the Internal Revenue Code. It lets you sell one investment or business property and buy another like-kind property while deferring federal capital gains taxes. Since 2017, only real property qualifies.
To qualify, both the property you sell and the one you buy must be held for investment or used in a trade or business. Properties held primarily for sale do not qualify. In Florida, there is no state personal income tax, but federal taxes and transaction costs still apply.
Core rules you must meet
- Properties must be like-kind. For U.S. real estate, the standard is broad. You can move from a single-family rental to a small apartment building or from vacant land to a condominium unit held for investment.
- Use a Qualified Intermediary for delayed exchanges. You cannot touch or control the sale proceeds. The QI holds the funds and coordinates the paperwork and assignments.
- Keep clear documentation of your investment intent and holding periods. Exchanges should reflect bona fide investment activity, not property held for sale.
Critical timelines in plain English
Two dates control every 1031 exchange. Both are firm and calculated in calendar days.
- 45-day identification period: Starting the day you close on the sale, you have 45 days to identify replacement property in writing. The list must be signed and delivered to your QI or the seller of the replacement property.
- 180-day exchange period: You must acquire the replacement property and finish the exchange within 180 days of the sale or by your federal tax return due date for that year, whichever comes first. The 180 days include the first 45 days.
Tip: A late-year sale can shorten your effective window if your tax return is due before day 180. Start your search before you list the property whenever possible.
Identification rules you can use
You must identify replacement options using one of three methods:
- Three-property rule: Name up to three properties, no value cap. You can buy any one or more of them.
- 200% rule: Identify any number of properties as long as their total value does not exceed 200% of what you sold.
- 95% exception: If you list more properties than allowed above, you must close on at least 95% of the total value identified. This path is uncommon and requires careful valuation.
Make your identification unambiguous. Include addresses and legal descriptions when available, and submit your list to the QI before day 45.
Exchange types that fit your strategy
- Simultaneous exchange: You sell and buy the same day. This is rare in practice.
- Delayed exchange: You sell first and buy later using a QI. This is the most common structure.
- Reverse exchange: You buy the replacement property first. A special titleholder structure is required and costs are higher.
- Improvement exchange: Exchange funds pay for renovations before you take title to the finished replacement. Improvements must be completed within the 180-day period and handled by your QI or an exchange accommodation titleholder.
Financing, debt, and avoiding boot
To fully defer taxes, match or exceed both the net purchase price and the debt level of your relinquished property. If you receive cash at closing or reduce your mortgage liability without replacing it, the difference is taxable boot.
- Cash boot: Cash you receive out of the exchange. Taxable to the extent of gain.
- Mortgage boot: A decrease in total debt from sale to purchase. You can offset it with additional cash or new financing on the replacement property.
Line up lenders who understand 1031 timing so funding does not delay your closing or cause constructive receipt of funds.
Related-party and holding period cautions
Exchanges involving related parties can trigger extra scrutiny. Practitioner guidance often points to holding periods of about two years for each side to reduce audit risk. Keep clear records that show investment intent and proper use of the property.
Miami-Dade realities that affect your exchange
South Florida is an investor-heavy market with strong rental demand. That creates opportunity, but it also adds complexity when you are working inside a 45- and 180-day clock.
- Inventory and competition: Desirable Miami neighborhoods can see limited supply and quick moves. Pre-approval and active deal flow help you identify and secure replacements on time.
- Property types: Popular investor assets include Miami Shores single-family rentals, small multifamily buildings, and condominium units across the county.
- Short-term rental rules: STR policies vary by city. Some municipalities have strict limits. Verify rules for both your sale and target purchase cities before you identify.
- Insurance and storms: Wind and flood coverage availability and pricing can materially affect returns. Factor hurricane season and closing logistics into your timeline.
Miami Shores scenarios to make it real
These examples are illustrative to show how mechanics work.
Simple deferred exchange to avoid boot: You sell a Miami Shores single-family rental for 900,000 dollars. Your adjusted basis is 300,000 dollars, so your realized gain is 600,000 dollars. To fully defer, buy replacement property at 900,000 dollars or more and keep total debt at least equal. If you buy at 700,000 dollars and receive 200,000 dollars back, that 200,000 dollars is taxable boot.
Upgrade to small multifamily in Miami-Dade: You want more doors and cash flow. Use the three-property rule to identify multiple multifamily options, secure loan pre-approval, and coordinate with your QI to close within 180 days. Review condo or building rules, rental market dynamics, and code compliance.
Improvement exchange for value-add: You find a property that needs renovation or you plan to add an ADU. Structure an improvement exchange so funds can pay for upgrades before you take title. All improvements must be completed within the 180-day window. In Miami-Dade, permitting and contractor lead times can be lengthy, so confirm feasibility early.
Due diligence checklist
Before you list your property:
- Engage a Qualified Intermediary and sign the exchange agreement.
- Meet with your tax advisor to run gain, boot, basis, and timing scenarios.
- Align with a local agent who knows 1031 timelines and municipal rules; build a shortlist of replacements.
- Secure lender pre-approval for expected loan sizes.
At sale:
- Include any assignment language needed to enable the QI.
- Deliver your written identification list to the QI within 45 days.
Between sale and purchase:
- Track each identified property’s progress and keep backups using the three-property or 200% rule.
- Coordinate title, inspections, and closing dates with your QI and title company.
At replacement closing:
- Verify title, insurance, and local compliance are complete.
- Confirm loan funding and QI wiring align so you do not take constructive receipt.
Pitfalls to avoid
- Missing the 45- or 180-day deadlines. Extensions are rarely available.
- Touching sale proceeds. Always route funds through the QI.
- Reducing total value or debt without planning for boot.
- Ignoring related-party rules and practical holding periods.
- Overlooking local rules on short-term rentals, registrations, and permits.
When a 1031 may not fit
- You plan to cash out and exit real estate.
- Estate planning suggests a step-up in basis at death makes more sense.
- The replacement market is too thin to find the right asset within 180 days.
- Costs and complexity of reverse or improvement exchanges outweigh benefits.
Your professional team
- Qualified Intermediary with strong exchange experience
- Tax advisor or CPA who understands basis, gain, and boot
- Exchange attorney for reverse, improvement, or related-party structures
- Local agent experienced with investors, timed closings, and municipal rules
- Title company familiar with exchange documents
- Lender attuned to 1031 timelines and QI coordination
Next steps
If a 1031 exchange aligns with your goals, start early. Build your replacement shortlist before you list, assemble your team, and set a realistic financing and closing plan. With the right structure, you can scale from a Miami Shores single-family rental to a higher-performing asset in Miami-Dade without triggering immediate federal capital gains tax.
If you want local deal flow, timeline management, and concierge coordination from contract to closing, connect with Jason Sims to map your exchange strategy.
FAQs
What is a 1031 exchange and who qualifies?
- A 1031 lets you defer federal capital gains tax by selling one investment or business property and buying like-kind U.S. real estate held for investment; properties held primarily for sale do not qualify.
How do the 45-day and 180-day deadlines work in Miami-Dade?
- You must identify replacement property in writing within 45 days of selling and close on the replacement within 180 days or by your tax return due date, whichever comes first.
Can I exchange a Miami Shores rental for a condo or multifamily?
- Yes, for U.S. real property the like-kind standard is broad, so you can move from a single-family rental into a condo or small apartment building held for investment.
What is taxable boot in a 1031 exchange?
- Boot is taxable cash or reduced mortgage liability you receive in the exchange; to fully defer, match or exceed both value and debt from the property you sold.
Are short-term rentals eligible as 1031 replacement property?
- Property can qualify if it is held for investment or business use, but municipal short-term rental rules vary by city, so verify local restrictions before identifying replacements.
