How to Use 1031 Exchanges to Grow Your Commercial Property Portfolio
- Nate Jones, CPCU, ARM, CLCS, AU
- Oct 15
- 2 min read
If you're a commercial property investor looking to scale your portfolio without losing capital to taxes, the 1031 exchange might be your best tool. Named after Section 1031 of the IRS Code, this strategy allows you to defer capital gains taxes when selling an investment property—provided you reinvest the proceeds into another like-kind property.
Here’s how it works and how it can help you grow your holdings.
What Is a 1031 Exchange?
A 1031 exchange lets you sell one investment property and purchase another of equal or greater value without immediately triggering capital gains taxes. Instead of paying taxes on your profits, you roll them into a new property, keeping your capital working for you.
“Like-kind” doesn’t mean identical—it simply means both properties are held for investment or business use. For example, you can exchange a retail strip mall for an office building or a warehouse for a multifamily complex.
Benefits of Using a 1031 Exchange
1. Tax Deferral: Avoid paying capital gains taxes upfront, preserving more capital for reinvestment.
2. Portfolio Growth: Use deferred taxes to acquire larger or higher-performing assets.
3. Diversification: Shift into different markets or property types to reduce risk.
4. Consolidation: Combine smaller properties into one larger, easier-to-manage investment.
5. Estate Planning: Heirs may receive a step-up in basis, potentially eliminating deferred taxes altogether.
Key Rules and Timelines
To qualify for a 1031 exchange, you must follow strict IRS guidelines:
45-Day Rule: Identify replacement properties within 45 days of selling your original property.
180-Day Rule: Close on the new property within 180 days.
Qualified Intermediary (QI): You cannot receive the sale proceeds directly. A QI must hold and transfer the funds.
Same Taxpayer Rule: The entity selling and buying must be the same.
Protect Your Exchanged Property with Wexford Insurance
Once your exchange is complete, protecting your new asset is essential. Wexford Insurance offers tailored commercial property coverage for Apartments, office buildings, retail centers, warehouses, hotels, and mixed-use buildings
Lessors risk insurance for leased properties
Business interruption coverage
Optional add-ons like flood, cyber, and ordinance coverage
Final Thoughts
1031 exchanges are more than a tax strategy—they’re a growth engine for commercial property investors. With the right planning and insurance partner, you can scale your portfolio while preserving capital. Contact Wexford Insurance today to protect your investment and maximize your returns.
FAQs
1. What qualifies as “like-kind” property?
Any U.S. real estate held for investment or business use—retail, office, industrial, multifamily, etc.
2. Can I do multiple 1031 exchanges?
Yes. Investors often use successive exchanges to compound growth and defer taxes indefinitely.
3. Does Wexford Insurance cover properties acquired through a 1031 exchange?
Absolutely. Wexford provides full coverage for exchanged assets across all commercial property types.
