Federal 1031 Exchange Rules

The basics apply everywhere. Sell investment or business real property, use a qualified intermediary to hold the proceeds, identify replacement property within 45 days, close within 180 days. Both properties must be held for investment or business use — primary residences and fix-and-flip inventory don’t qualify.

The “like-kind” definition is broad. A condo in Brickell that you’ve been renting out qualifies as like-kind to a warehouse in Hialeah, a strip mall in Orlando, or a multifamily building in Nashville. Real property for real property. Geography doesn’t matter for federal purposes (though it must be within the U.S. — no exchanging into foreign real estate).

No State Income Tax: What That Means for Exchanges

In California, a 1031 exchange defers up to 13.3% in state capital gains tax. In New York City, the deferral saves up to 14.776% combined state and city. In Florida, the state savings is zero because there’s no state income tax to defer.

Does that make 1031 exchanges less valuable in Miami? Not exactly. The federal tax deferral is still substantial. On a $1 million capital gain, the federal tax (20% capital gains + 3.8% NIIT) comes to $238,000. Add depreciation recapture at 25%, and the total federal bill can easily exceed $300,000 on a property you’ve held for a while.

That $300,000 stays invested and compounding if you do the exchange. Over a 10-year hold on the replacement property, the time value of that deferred tax is meaningful — even without any state-level kicker.

Florida Doc Stamps and Intangible Tax

Florida doesn’t tax income, but it does tax transactions. Two costs that affect 1031 exchanges in Miami:

• Documentary stamp tax (“doc stamps”): Florida charges $0.70 per $100 of consideration on the deed (or $0.60 per $100 in Miami-Dade County for single-family, which uses a different calculation). On a $2 million sale, that’s roughly $14,000. This applies to both the sale of the relinquished property and the purchase of the replacement property if both are in Florida.
• Intangible tax on mortgages: If the replacement property has a new mortgage, Florida charges $0.002 (2 mills) per dollar of the new mortgage amount. A $1.5 million mortgage means $3,000 in intangible tax. Refinancing existing debt can also trigger this tax.

These are transaction costs, not income taxes. The 1031 exchange doesn’t defer them. They come out of the deal economics on both sides — selling and buying. On a high-value Miami exchange, the combined doc stamps on both transactions can run $25,000-$40,000. Small relative to the tax deferral, but worth building into your projections.

Miami Market Considerations

The Miami real estate market has features that make 1031 exchanges both attractive and tricky:

• Foreign investor prevalence: Miami has a significant international buyer pool. Non-U.S. investors face different 1031 rules — FIRPTA withholding applies on the sale side, and the exchange must be structured carefully to ensure the withholding obligation doesn’t disqualify the exchange. If you’re a U.S. resident buying from a foreign seller, the FIRPTA withholding isn’t your problem, but it can slow down closing timelines.
• Condo inventory: A large portion of Miami’s investment property market is condominiums. Condos qualify for 1031 exchanges as long as they’re held for investment (rental) and not as dealer property (buy-renovate-flip). The holding period matters — the IRS looks at intent. Two years of rental history is generally enough to establish investment intent, though there’s no bright-line rule.
• Rapid appreciation: Miami property values have increased sharply since 2020. Investors who bought pre-pandemic and sell now may have significant gains even on relatively short holds. The 1031 exchange keeps all of that gain deferred and working.
• Insurance costs: Florida property insurance has increased dramatically. When evaluating replacement property, factor in the insurance cost — a property that looks great on cap rate may look less appealing after a $50,000 annual insurance premium.

Exchanging Into or Out of Florida

Florida is one of the most popular destinations for 1031 exchange replacement properties. Investors from New York, California, and other high-tax states sell properties in their home states and exchange into Florida real estate. The appeal is straightforward: no state income tax on future rental income, no state capital gains if they eventually sell outright, and strong appreciation in many Florida markets.

Going the other direction — selling Florida property and exchanging into another state — is simpler from a state tax perspective. Since Florida has no income tax, there’s no state clawback to worry about. New York and California, by contrast, track the deferred gain and may tax it when the replacement property is eventually sold. Florida doesn’t do this. Once you sell and exchange, the state has no interest in the deferred gain.

This makes Florida a clean starting point for multi-state exchanges. You don’t have to worry about filing annual tracking forms with a state tax authority (like California’s Form 3840) or dealing with source-income clawback rules.

Reverse Exchanges and Build-to-Suit

Two advanced exchange structures worth mentioning for Miami investors:

A reverse exchange lets you buy the replacement property before selling the relinquished property. An Exchange Accommodation Titleholder (EAT) takes title to the new property while you market the old one. This is useful in a competitive Miami market where you find the perfect replacement property and can’t wait for your current property to sell. Reverse exchanges are more expensive — the EAT charges fees and the financing is more complex — but they solve the timing problem.

A build-to-suit (improvement) exchange lets you use exchange proceeds to build or renovate the replacement property. The construction must be completed within the 180-day window, and the property must be held by the QI or EAT during construction. In Miami, where land costs are high and custom development is common, this structure lets investors exchange into a ground-up project rather than an existing building.