Published: August 2026 | Author: Patrick Frazer, Commercial Real Estate Advisor | NH & Southern Maine
If you own investment real estate in New Hampshire or Southern Maine and have been thinking about selling, the 1031 exchange is the single most powerful tool available to you for preserving equity and repositioning your portfolio. It is also one of the most misunderstood — and the mistakes investors make are expensive and usually irreversible.
This is a practical guide to how 1031 exchanges work, what the current rules are in 2026, and how investors in this market are using them.
What a 1031 Exchange Actually Does
A 1031 exchange — named for Section 1031 of the Internal Revenue Code — allows you to sell an investment property and reinvest the proceeds into another investment property while deferring capital gains taxes on the sale. You are not eliminating the tax. You are deferring it, potentially indefinitely, as long as you keep rolling proceeds into qualifying replacement properties.
The practical impact is significant. If you sell a property with a large embedded gain and pay capital gains tax at the time of sale, you are reinvesting after-tax dollars. If you exchange instead, you are reinvesting the full pre-tax amount. That difference in capital available for the next purchase compounds over time and can meaningfully affect long-term portfolio growth.
As a straightforward example: sell a property with a $400,000 gain, pay 20% federal capital gains tax plus depreciation recapture, and you might lose $80,000 to $120,000 or more before you reinvest a dollar. Exchange into a replacement property and that capital stays working for you.
The 2026 Rules: What Has and Has Not Changed
1031 exchanges are fully intact in 2026. The One Big Beautiful Bill Act, signed into law in July 2025, did not alter the 1031 exchange rules. Investors can continue to defer capital gains taxes when reinvesting in qualifying real property under the same framework that has been in place since the Tax Cuts and Jobs Act narrowed exchanges to real property only.
The core rules remain:
Only real property qualifies. Personal property — equipment, vehicles, business assets — does not.
The exchange must be for like-kind property. In practice, “like-kind” is broader than most people expect. You can exchange a retail building for an industrial building, a multifamily property for raw land, or a NH property for one in Maine or any other state. Like-kind refers to the nature of the investment, not the property type.
All proceeds from the sale must go directly to a Qualified Intermediary (QI) — not to you. If the money touches your hands at any point, the exchange is disqualified and taxes become due immediately. This is non-negotiable.
The Timeline: Where Most Exchanges Fail
The timeline is where investors get into trouble. The rules are strict and the IRS does not grant extensions for honest mistakes.
Day 1: The exchange clock starts the moment your relinquished property closes. From that date, you have two firm deadlines.
Day 45: You must identify your replacement property in writing to your Qualified Intermediary. The identification must be specific — a street address or legal description. General descriptions do not qualify. You can identify up to three properties under the standard three-property rule, or more under certain conditions. Missing this deadline kills the exchange entirely, with no exceptions.
Day 180: You must close on the replacement property within 180 calendar days of the original sale — or by your tax return due date including extensions, whichever comes first. Note: the 180 days includes the 45-day identification period. It is not 45 days plus 180 days.
One critical detail that catches investors off guard: if you sell after October 18th and your 180-day exchange period extends into the next tax year, your deadline defaults to April 15th — the tax filing date — unless you file a tax extension. Filing an extension preserves your full 180 days. Many investors miss this.
The practical takeaway: start identifying replacement property before you close on the sale if at all possible. Experienced investors line up candidates in advance to avoid deadline pressure. Forty-five days moves faster than you think, especially in a market where good replacement properties are not abundant.
What Counts as a Qualifying Replacement Property
The replacement property must be held for investment or productive use in a trade or business. Primary residences do not qualify. Vacation homes are complicated — the IRS applies a use test, and properties that have been primarily personal-use do not qualify without a documented conversion period.
The replacement property must be equal to or greater in value than the relinquished property to defer all gain. If you trade down in value, or if you receive any cash back at closing, the difference is taxable “boot.” Similarly, if you carry less debt on the replacement property than you had on the relinquished property, the difference in debt relief can create taxable boot. Model this carefully before you commit
How NH and Southern Maine Investors Are Using 1031s
In this market, 1031 exchanges most commonly come up in a few specific situations.
Repositioning out of management-intensive assets. An investor who has owned a multifamily or mixed-use property for 15 to 20 years, with a low basis and high embedded gain, uses a 1031 to exit and reinvest into a NNN leased commercial property with minimal landlord responsibilities. Same equity, significantly less management burden.
Moving up in asset class. An owner of a smaller retail or office building exchanges into a larger industrial or multifamily asset to capture better cash flow or appreciation potential without paying tax on the gain from the smaller property.
Geographic repositioning. An investor with a Southern NH property who wants to move capital to a different submarket — or out of state — can do so without a tax event at the time of sale.
Estate planning. Properties held through death receive a stepped-up basis, which can eliminate deferred gains entirely for heirs. Some investors use 1031 exchanges strategically throughout their lifetimes with the intention of never paying the deferred tax — passing appreciated properties to heirs who inherit them at current market value.
The Qualified Intermediary: Do Not Skip This Step
You must use a Qualified Intermediary to hold the exchange proceeds between the sale of your relinquished property and the purchase of your replacement property. The QI is not optional and cannot be your attorney, your accountant, or your broker — anyone who has had a financial relationship with you in the past two years is disqualified.
The QI holds your funds, prepares the exchange documents, and ensures the transaction is structured to IRS requirements. Fees typically run $800 to $1,200 for a standard delayed exchange. That cost is trivial relative to the taxes being deferred.
Choose your QI before you close on the sale. Setting one up after the fact is too late.
What to Watch For in 2026 and Beyond
1031 exchanges have survived multiple rounds of legislative proposals to limit or eliminate them. They remain intact today. That said, legislative risk is real — proposals to cap the amount of gain that can be deferred, or to eliminate exchanges entirely, surface periodically in Congress. No changes have been enacted as of August 2026, but investors with large deferred gains should factor the possibility of future changes into long-term planning.
The broader message is this: the 1031 exchange is available now, under favorable rules, and the commercial real estate market in Southern NH offers legitimate replacement property options across asset classes. If you have been sitting on an appreciated property and thinking about a next move, now is a reasonable time to evaluate whether an exchange makes sense.
A Note on Professional Advice
This post is intended to be a practical introduction to 1031 exchanges — not tax or legal advice. Every exchange is different, and the details matter. Work with a CPA who has 1031 experience and a Qualified Intermediary before you close on any sale where you intend to exchange. The cost of good advice is small relative to the cost of a failed exchange.
Patrick Frazer is a commercial real estate advisor covering New Hampshire and Southern Maine across all asset classes. If you own investment property and are thinking about selling, repositioning, or evaluating a 1031 exchange, reach out for a conversation about your options.