🔄 How to 1031 Exchange in Arizona: Step-by-Step for Smart Investors

If you're a real estate investor looking to defer capital gains taxes while growing your portfolio, a 1031 exchange is one of the most powerful tools at your disposal. Whether you're trading a rental in Chandler for a new build in Queen Creek or upgrading a fourplex in Tempe, Arizona offers excellent opportunities for tax-deferred exchanges.

Here’s a step-by-step guide on how to execute a successful 1031 exchange in Arizona—so you can build wealth strategically and legally.

 
💡 What is a 1031 Exchange?
A 1031 exchange (named after Section 1031 of the IRS Code) allows you to defer paying capital gains taxes when you sell one investment property and reinvest the proceeds into another “like-kind” investment property.

✅ Requirements for a Valid 1031 Exchange:
Property must be held for investment or business use (not your primary residence)
New property must be of equal or greater value
You must follow strict timelines and rules
A qualified intermediary (QI) must facilitate the exchange
 
🗺️ Step-by-Step Guide to a 1031 Exchange in Arizona
1. Plan Ahead and Consult Your Team
Before listing your current property, speak with:

A 1031 exchange-qualified intermediary (QI)
Your CPA or tax advisor
A local real estate expert (like us 👋)
Planning ahead is crucial—once the sale closes, the clock starts ticking.

 
2. List and Sell Your Existing Investment Property
Your current property can be:

A single-family rental
A multifamily (duplex, fourplex, etc.)
Commercial real estate
Once you accept an offer, notify your QI. You cannot touch the sale proceeds—they must be held by the QI to preserve tax deferral.

 
3. Identify Replacement Properties (Within 45 Days)
You have 45 days from the closing of your sale to formally identify up to 3 replacement properties in writing.

💡 Tip: We recommend identifying 2–3 strong options with backup choices.

 
4. Close on a Replacement Property (Within 180 Days)
You must close escrow on your chosen property within 180 days of selling your original one.

The replacement property must be:

“Like-kind” (used for investment or business)
Equal or greater in value than what you sold
Purchased using all proceeds to defer 100% of the capital gains tax
 
5. Complete Paperwork and Report to the IRS
Your QI will help with:

Proper documentation
IRS Form 8824
Recording timelines and property details
Make sure your CPA files the exchange properly on your tax return.

 
🧠 Arizona-Specific Tips
Growth Markets: Look into areas like Queen Creek, where new builds offer great long-term potential, or Gilbert, where rents are high and stable.
HOA Rules: Be aware of HOA restrictions on rental use, especially in newer developments.
Vacation Rentals: If you’re buying in Tempe or near Old Town Scottsdale, check local STR ordinances before investing.
 
🧮 1031 Exchange Example in the East Valley
John owns a $500,000 rental in Chandler, bought 7 years ago for $300,000. He wants to avoid capital gains taxes on the $200K appreciation. He sells and uses a 1031 exchange to purchase two rental homes in Mesa and Queen Creek, each worth $300,000.

✅ He uses a QI
✅ Identifies 3 properties in 45 days
✅ Closes on 2 within 180 days
✅ Defers all taxes and expands his portfolio
 
❗ Common Mistakes to Avoid
❌ Missing the 45- or 180-day deadlines
❌ Trying to exchange a primary residence
❌ Failing to use a qualified intermediary
❌ Taking proceeds directly
 
🎯 Final Thoughts
A 1031 exchange isn’t just a tax strategy—it’s a smart portfolio growth tool. If you’re thinking of selling an investment property and want to reinvest in the East Valley, the time to plan is before you list.

📞 Let’s Make Your Exchange Smooth
With over 20 years of experience and deep East Valley knowledge, Linda and I can help you navigate every step of your 1031 exchange—from finding ideal replacement properties to working with your intermediary.

👉 Start your exchange with confidence at AZRealtorSisters.com