How to Use a 1031 Exchange When Selling a Multifamily Property in Los Angeles

If you own a multifamily building in Los Angeles and are thinking about selling, you've probably wondered what the tax hit will look like. After years of appreciation, it's not unusual for multifamily owners here to face six-figure capital gains taxes when they sell. One of the few ways to avoid writing a massive check to the IRS is through a 1031 exchange.

At its core, a 1031 lets you swap one investment property for another investment property and push your tax bill down the road. It's not a loophole- it's been written into the tax code for decades -but it does come with some specific rules and deadlines that you can't miss.

What It Actually Means

A 1031 exchange (named after the section of the IRS code that allows it) gives you the ability to sell an investment property and reinvest the proceeds into another, without having to immediately pay the capital gains tax.

For example, someone might sell a fourplex in Koreatown and roll the equity into a larger, newer apartment building in the Valley. Another owner might trade an older walk-up in Westlake for a commercial strip center in Orange County. As long as the properties are both for investment, the swap qualifies.

The Ground Rules

There are a few basics you can't get around:

• You can't pocket the money from the sale. A qualified intermediary has to hold the funds until you close on the next property.
• You have 45 days after closing your sale to identify potential replacements (up to three).
• You have 180 days total to close on one of those identified properties.
• To fully defer the taxes, the new property (or properties) has to be worth the same or more than the one you sold.

Why It Matters in Los Angeles Multifamily

Owners of multiunit apartment properties in Los Angeles use 1031s all the time because property values here can sometimes balloon over time. A few common moves are:

• Selling a rent-controlled property and reinvesting into something newer that isn't capped by RSO.
• Retiring landlords trading hands-on management for something passive, like a triple-net commercial building.
• Investors rolling several smaller properties into one larger, more efficient asset.

Without a 1031, all those moves would come with a brutal tax bill.

The Key Takeaway

A 1031 exchange can be a smart way to reposition your portfolio while keeping more of your equity working for you. But the rules are very strict and the clock starts ticking the day you close, so planning ahead is advised.

At The Beverly Group, we've worked with many owners who chose to sell their investment property to us as part of a 1031. We buy multifamily properties in any condition – renovated or not, rent-controlled or not – and we close quickly, so you can move into your replacement property without missing the deadlines.

📩 Reach out to us today if you're considering a sale and want to explore how a 1031 exchange could work in your situation.

⚠️ Disclaimer: This article is for informational purposes only. It is not tax or legal advice. Always consult your CPA, attorney, or qualified intermediary before starting an exchange.

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