Thinking about selling a Marin investment and worried about taxes? If you own rental or commercial property in Novato or greater Marin, a 1031 exchange can help you defer capital gains while repositioning into a property that better fits your goals. The rules are strict, and the Marin market adds a few twists. In this guide, you will learn the basics, key timelines, local factors to plan for, and a simple checklist to move forward with confidence. Let’s dive in.
What a 1031 exchange is
A 1031 exchange is a federal tax provision that lets you defer recognition of capital gains when you sell real property held for investment or for use in a trade or business and buy another like-kind property. The exchange must follow specific procedures to qualify. Deferred means the tax is postponed, not erased, and your basis carries over to the replacement property.
Eligible property types
Only real property qualifies at the federal level. The property you sell and the property you buy must both be held for investment or business use. Personal-use property, such as a primary residence, does not qualify. Parts of a property used as a rental may qualify if they meet holding and use criteria.
What taxes are deferred
A properly executed exchange defers capital gains tax and depreciation recapture that would otherwise be due at sale. Taxes are generally recognized later when you sell a replacement property in a taxable disposition. If you receive any non like-kind value at closing, you may trigger taxable gain.
Understand boot
Boot is any value you receive that is not like-kind real property. That can include cash, a reduction in mortgage debt, or personal property included in a deal. Boot is typically taxable to the extent of your realized gain. Investors often plan their financing and cash contributions to reduce or avoid boot.
How a Marin 1031 works
Executing a 1031 in Marin follows federal rules, with California generally conforming for income tax purposes. The process relies on a strict sequence and documentation.
The Qualified Intermediary
In a typical delayed exchange, you cannot receive sale proceeds. A Qualified Intermediary, often called a QI, holds the funds from your sale and disburses them to acquire the replacement. If you touch the proceeds, even briefly, you can invalidate the exchange.
The 45-day and 180-day clocks
Two deadlines are critical:
- Identification period: 45 calendar days from the date you transfer the relinquished property to identify replacement properties in writing.
- Exchange period: 180 calendar days from that same transfer date to acquire the replacement property. The 180 days include the first 45 days.
These deadlines are strict, and extensions are rare. Plan your search and due diligence to fit the calendar, not the other way around.
Identification rules
Your written identification must follow one of these standards:
- Three-property rule: Identify up to three properties of any value.
- 200 percent rule: Identify any number of properties, as long as their combined fair market value does not exceed 200 percent of the value of the property you sold.
- 95 percent rule: If you identify more than allowed under the two rules above, you must acquire at least 95 percent of the total value of all properties you identified.
Submit the signed identification to your QI or required party within 45 days. Informal or verbal notices do not count.
Same-taxpayer and related-party rules
The same taxpayer who sells must buy. If you sell as an individual, you generally must also acquire as that same individual or an entity treated the same for tax purposes. Related-party exchanges are possible but have special rules. If a related party disposes of the property within two years, you may recognize gain unless an exception applies. Discuss structure early with tax counsel.
Financing and debt replacement
If your replacement property debt is lower than the debt you paid off on the sale, that difference can be mortgage boot. To avoid taxable boot, match or exceed the total of your old debt with new debt and, if needed, add cash to cover gaps. Coordinate with lenders in advance.
Exchange types to consider
Delayed exchange
This is the most common approach in Marin. You sell first, your QI holds proceeds, and you purchase the replacement within 180 days. Most residential rental and small commercial trades use this structure.
Reverse exchange
You acquire the replacement before selling. An Exchange Accommodation Titleholder holds title temporarily. Reverse exchanges cost more and require careful coordination, yet they can be useful in a tight market when the right property appears before you can sell.
Improvement exchange
You sell, then use exchange funds to improve the replacement while a facilitator holds title during construction. The completed improvements must be finished and conveyed within the 180-day window, which can be a challenge in jurisdictions with longer permitting timelines.
Marin and Novato realities
Marin County features high property values and limited inventory, especially for investment-grade multifamily and commercial assets. That can make identifying suitable replacement properties within 45 days more challenging. Many investors widen their search to other Bay Area counties to expand options.
Permitting, entitlements, and environmental reviews can take time in Marin. If your strategy involves improvements or redevelopment, factor in local processes such as design review and environmental considerations. The 180-day exchange deadline will not pause for permitting.
Property tax reassessment in California is separate from federal income-tax deferral. In most cases, your replacement property will be reassessed for local property tax purposes at acquisition. Review likely reassessment with the county assessor as part of your underwriting.
If you are acquiring residential rental property, statewide tenant protections, including rent caps and just-cause rules, may apply. Some Marin cities add local protections. These policies affect rent growth assumptions and holding strategies, so include them in your due diligence.
Environmental and coastal constraints also matter in parts of Marin. Even though Novato is inland, flood zones, wetlands, and creek setbacks can affect development potential and valuation. Confirm site conditions early if land or redevelopment is part of your exchange plan.
A practical 1031 checklist
Use this quick list before you list or accept an offer:
- Confirm your property qualifies as investment or business use with tax counsel.
- Engage a Qualified Intermediary before you close the sale.
- Map your identification strategy and line up backups under the three-property or 200 percent rule.
- Coordinate with lenders early and verify payoff amounts and loan requirements.
- Run local due diligence on each replacement candidate: zoning and entitlements, rent regulations, environmental constraints, inspections, title items, and valuation history.
- Structure debt and cash so the replacement equals or exceeds your relinquished property’s price and debt to reduce the chance of mortgage boot.
- If you contemplate reverse or improvement structures, confirm you understand added fees, timelines, and requirements.
- Keep the same taxpayer across both legs, including entity names and ownership.
- Review likely property tax reassessment with the assessor’s office.
- Maintain complete records: exchange agreement, assignment of contracts, identification notices, escrow instructions, and closing statements showing the QI held proceeds.
Common pitfalls to avoid
- Missing the 45-day or 180-day deadlines.
- Receiving proceeds directly or having constructive receipt of funds.
- Submitting late or imprecise property identifications.
- Changing ownership form midstream and failing the same-taxpayer rule.
- Underestimating Marin entitlement timelines on improvement exchanges.
- Creating mortgage boot by replacing less debt than you paid off.
- Overlooking rent regulations that affect cash flow and exit value.
- Entering related-party exchanges without planning for the two-year rule.
Example moves for Marin investors
- Trade a Novato single-family rental into a small multifamily building in Marin or a neighboring county to diversify income streams.
- Exchange from a management-intensive mixed-use building into a newer, lower-maintenance asset that better fits your desired time commitment.
- Use a reverse exchange to secure a rare industrial or flex space that meets specific operational needs before selling your current holding.
- Execute an improvement exchange to purchase a property and complete targeted upgrades that raise rents and unit mix within the 180-day window.
Each scenario requires careful timing, financing, and documentation. Your strategy should reflect your cash flow goals, tolerance for management, and the realities of Marin inventory.
How Stephanie helps you execute
A successful 1031 in Marin is about timing, selection, and disciplined process. You benefit from precise market intelligence, access to on and off-market opportunities, and confident negotiation. With a boutique, concierge approach supported by global marketing reach, you gain a partner who aligns the sale of your relinquished property with the acquisition of your next asset.
Here is how that looks in practice:
- Targeted sourcing in Novato and across Marin, plus cross-bay searches when inventory is tight.
- Data-driven valuation, offer strategy, and negotiation to protect pricing and terms on both legs of your exchange.
- Coordinated timelines that respect the 45-day and 180-day requirements while keeping inspections, appraisals, and lender milestones on track.
- Discreet outreach to qualified buyer and broker networks to accelerate your sale and open doors to replacements.
If you are considering a 1031 exchange, coordinate early with your CPA or tax advisor to confirm eligibility, structure, and implications for your situation. When you are ready to map the real estate side in Marin, reach out for a private conversation. Connect with Stephanie Lamarre to start planning your next move.
FAQs
Can I use a 1031 for my Novato home?
- Not if it is your personal residence. If you have held it as a rental for investment and it meets holding and use criteria, it may qualify. Confirm timing and facts with tax counsel.
How strict are the 45- and 180-day deadlines in a 1031?
- Very strict. The 45-day identification and 180-day completion periods use calendar days, and missed deadlines typically disqualify an exchange.
Does a 1031 prevent property tax reassessment in Marin?
- No. 1031 is an income-tax deferral. California property tax reassessment rules are separate and may reassess the replacement property at acquisition.
How many replacement properties can I identify?
- You can identify up to three properties of any value, or use the 200 percent rule for any number whose combined value is within 200 percent of what you sold, or meet the 95 percent rule.
Is a reverse exchange realistic in Marin’s market?
- Yes, but it is more complex and costly. It can be valuable when a rare property appears before you sell, provided you can meet the 180-day deadline and title-holding requirements.
