Replacement Property
Replacement property is the new like-kind real estate a 1031 investor acquires with exchange proceeds to complete the exchange and defer capital gains tax.
Definition
Replacement property is the real estate an investor buys to complete a 1031 exchange, using the proceeds from the property they sold (the relinquished property). To defer all tax, the replacement generally must be equal or greater in value, and the investor must reinvest all equity and replace any debt.
The replacement must be identified within 45 days and acquired within 180 days of the sale, and it must be like-kind; nearly any U.S. investment or business real estate qualifies. Investors can acquire one property or several, subject to the identification rules.
DSTs are widely used as replacement property because they let an investor deploy an exact dollar amount into institutional-grade, professionally managed real estate quickly, helpful when deadlines loom or leftover proceeds would otherwise become taxable boot. Whatever the form, the replacement carries over the deferred gain until it is eventually sold in a taxable transaction.
Key points
- The new like-kind property acquired to complete a 1031 exchange
- Must be equal or greater value to fully defer tax
- Identified within 45 days, acquired within 180 days
- DSTs are popular replacement property for precise, fast closings
Related terms
Jerry Baker founded Baker 1031 Investments to help exchange investors move from active property ownership into passive, institutional-quality real estate through DST, 721 exchange, mineral royalty, and Opportunity Zone strategies. He holds the FINRA Series 22 and Series 63 registrations and the Securities Industry Essentials (SIE) qualification. Read full bio →
Reviewed by the Aurora Securities, Inc. compliance team — Aurora Securities, Inc., member FINRA/SIPC. Last reviewed July 2026. Securities are offered through Aurora Securities, Inc.; Baker 1031 Investments, LLC is independent of Aurora Securities, Inc.
This glossary entry is educational and is not investment, tax, or legal advice, or an offer to sell or a solicitation to buy any security. Definitions are general and may not reflect your specific circumstances — consult your own CPA and attorney. Past performance does not guarantee future results.