Investing in real estate in California can be highly lucrative, but taxes on capital gains can significantly reduce profits when selling properties. Fortunately, the IRS Section 1031 Exchange offers a powerful tax-deferral strategy for real estate investors. In this guide, we will explore the benefits of a 1031 exchange in California, how it works, and actionable steps to maximize investment potential.
A 1031 exchange, named after Section 1031 of the Internal Revenue Code, allows real estate investors to defer capital gains taxes when selling a property and reinvesting the proceeds into a “like-kind” property. This strategy helps investors preserve wealth, increase buying power, and expand their real estate portfolios.
Tax Deferral: Investors can defer capital gains taxes, allowing for greater reinvestment potential.
Portfolio Growth: Enables property owners to consolidate or diversify holdings.
Increased Cash Flow: Swapping properties can help secure better rental income and long-term appreciation.
Estate Planning: Allows heirs to receive a stepped-up basis on inherited properties, reducing tax liabilities.
Executing a 1031 exchange requires following strict IRS regulations. Here’s a step-by-step guide:
Step 1: Determine Eligibility
The property must be used for investment or business purposes, and the replacement property must be of “like-kind,” meaning it must also be for investment or business use.
Step 2: Identify a Qualified Intermediary (QI)
A QI is required to facilitate the exchange. The seller cannot directly receive the proceeds from the sale; the QI holds the funds until the replacement property is acquired.
Step 3: Sell the Relinquished Property
Once the property is sold, the funds are transferred to the QI, who will safeguard them until reinvestment.
Step 4: Identify Replacement Property Within 45 Days
The IRS requires investors to identify up to three potential replacement properties within 45 days of selling the original property.
Step 5: Complete the Exchange Within 180 Days
Investors must close on the new property within 180 days from the sale date of the relinquished property to qualify for tax deferral.
State Tax Rules: While the federal government allows capital gains tax deferral, California requires investors to track exchanges through its “clawback provision.” If the exchanged property is later sold and no further 1031 exchange occurs, state taxes become due.
High Property Prices: Given California’s high real estate costs, investors may explore out-of-state exchanges to maximize purchasing power.
Market Trends: Researching market conditions ensures that replacement properties align with long-term investment goals.
Missing Deadlines: Failing to meet the 45-day identification or 180-day closing requirement disqualifies the exchange.
Incorrect Property Type: Personal-use properties, such as primary residences, do not qualify.
Using an Unqualified Intermediary: Investors must use a reputable QI to ensure compliance.
A 1031 exchange can be a game-changer for California real estate investors looking to defer taxes and build wealth. However, navigating the process requires careful planning and expert guidance.
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By leveraging the 1031 exchange, investors can unlock new opportunities in California’s dynamic real estate market while deferring hefty tax obligations. Start your exchange journey with Magnify Equity today!
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As Bay Area real estate adjusts to shifting interest rates, low housing turnover, and rising rental demand, San Mateo has quietly emerged as a prime market for 1031 exchange investors. While high-profile cities like San Francisco or San Jose dominate headlines, June 2025 trends suggest San Mateo is becoming one of the most strategic locations for tax-deferred reinvestment.
Whether you’re moving equity out of a property with compressed returns or trying to reposition your portfolio into higher-yield opportunities, San Mateo offers the kind of fundamentals investors are seeking in this market: stability, demand, and value.
According to Zillow and MLS data for June 2025, the San Mateo real estate market has experienced:
This combination of rising rents and stable-to-softening prices is exactly the environment that savvy 1031 exchange investors look for: the opportunity to defer capital gains while upgrading into stronger income-producing properties.
While San Francisco’s high regulation and flattening price curves are prompting some investors to exit, San Mateo offers a compelling middle ground:
Recently, there’s been a noticeable rise in multi-offer activity on well-positioned investment properties located near major transit lines, where low vacancy rates and strong tenant retention continue to attract 1031 buyers.
Unlike sprawling suburban zones that rely heavily on car-based commuting, San Mateo offers a “15-minute city” feel. Tenants want walkable access to schools, cafes, parks, and public transport and San Mateo delivers.
This enhances long-term rental desirability and helps sustain premium rents, even as affordability challenges reduce buyer activity in other markets. For investors coming out of high-value SFRs or underperforming condos in San Francisco or San Jose, reinvesting in San Mateo means acquiring a more resilient asset in a tenant-centric location.
June is a pivotal month for 1031 exchange investors. With Q2 nearly complete, many investors are:
San Mateo is perfectly suited for this. Not only are duplexes and triplexes trading below peak pricing, but demand from renters, particularly dual-income tech households priced out of Palo Alto or Menlo Park remains strong.
Here are a few standout micro-trends from San Mateo’s June 2025 market data:
These indicators reflect a tight, competitive, but not overheated market ideal for 1031 investors who need to act within 45-day and 180-day IRS timelines.
Investors working with Magnify are already experiencing advantages in property selection, pricing flexibility, and reduced competition. Compared to what’s expected later this year, early movers are securing favorable opportunities while inventory remains accessible and buyer activity is still moderate.
This environment especially benefits 1031 exchange investors and cash buyers, who can act quickly and avoid delays tied to complex financing. With many sellers driven by timing needs, estate planning, or portfolio realignment, mid-year continues to offer a strategic window to negotiate well-positioned deals before buyer demand increases in the second half of the year.
San Mateo may not generate the real estate buzz of San Francisco’s political shifts or San Jose’s corporate leases, but it quietly offers everything a 1031 investor needs in 2025: relative price stability, strong rent fundamentals, manageable inventory, and long-term tenant appeal.
In a year defined by caution and recalibration, San Mateo represents a high-conviction market with a lower-risk profile and a smart play for long-term wealth preservation.
If you’re planning a 1031 exchange this year, now is the time to consider San Mateo. Let Magnify Equity help you evaluate available opportunities, meet IRS deadlines, and reinvest strategically in one of the Bay Area’s most underappreciated investment zones.
