Real Estate Tax Deferral Success Stories

with 1031 Flows

See the examples below showing how both basic and reverse 1031 flows work. In each case, the investor, “John,” successfully defers significant capital gains taxes by reinvesting his profits into new property. Both deals ended with Fred owning valuable real estate—without the large tax hit.

John purchased a small rental condo in Chicago back in 2010 for $200,000. Over the years, he rented it out to tenants and occasionally used it as a getaway spot for himself and his family.

Now ready to upgrade, John wants to sell the condo and buy a larger property—something he can continue renting out while still enjoying from time to time. With the real estate market in his favor, his condo is now worth $360,000. Just as he’s preparing to list it, John realizes that selling could leave him with a hefty capital gains tax bill—nearly $32,000. Not wanting to lose that much of his profit, John talks to his CPA, who tells him about a 1031 flow—a tax strategy that lets him defer the capital gains tax if he reinvests the full amount into another property. That’s when John reaches out to 1031 Flow Connection to explore his options.

Once John signs a contract to sell, he provides the needed details, and our team sets up the flow documents and sends instructions to the title company handling his sale. On closing day, the sale proceeds are wired to us, acting as his Qualified Intermediary, and John officially begins the 1031 flow process.

From that day, he has 45 days to identify up to three properties he’d consider purchasing, and 180 days total to complete one of the purchases. John finds several solid replacement properties, all equal to or greater in value than the one he just sold.

By day 45, he finalizes his list and chooses one worth $500,000. He goes under contract, submits the new property’s details, and we prepare all necessary flow paperwork. Before his 180-day deadline, John closes on the new property, and we wire the funds from the original sale directly to the closing agent.

Thanks to the 1031 flow, John reinvests fully without paying capital gains tax—and walks away with a great new investment property in his portfolio.

John owns a condo in Chicago that he bought for $200,000. For the past few years, he’s rented it out and occasionally used it for vacations. Now, he’s eyeing a larger investment property—priced at $360,000—but he hasn’t sold his condo yet. 

To avoid losing the new opportunity and also defer capital gains tax, John considers a reverse 1031 flow. Because the condo is an income property, he qualifies—assuming he’ll keep the new property as an investment for at least two years and rent it for at least 14 days annually.

John partners with 1031 Flow Connection to handle the process. Since owning both properties at once would disqualify the flow, the new property is temporarily purchased by the Qualified Intermediary (QI) through an entity called an Equity Accommodation Titleholder (EAT). John either uses his own cash, gets a loan, or combines both to fund the purchase.

Before the closing, all necessary paperwork is prepared. The day the new property is acquired, John’s 45-day window starts to officially identify the condo he’s planning to sell. He then has up to 180 days to complete that sale, per IRS Safe Harbor guidelines.

If the sale takes longer, the flow can still continue outside Safe Harbor rules—John and the QI simply update the agreement to keep the EAT in place longer. Once the condo is sold, the new property title is transferred to John. At no point did he directly own both properties, keeping the 1031 flow valid. To meet IRS requirements, John must hold the new property in the same legal name he held the old one.