If you’re selling commercial or investment property and looking to reinvest while deferring capital gains taxes, a 1031 exchange can be one of the most powerful tools in your portfolio strategy. But like most things in real estate, success lies in the details—and that’s where guidance matters.
At Annie Scott Realty Group LLC, I help Indiana investors leverage 1031 exchanges to build wealth, reduce tax liability, and reposition their holdings more strategically. Here’s what you need to know when navigating a 1031 exchange in Indiana.
What Is a 1031 Exchange?
A 1031 exchange—named after Section 1031 of the IRS tax code—allows investors to defer paying capital gains taxes when they sell an investment property and reinvest the proceeds into another “like-kind” property.
In simpler terms: You can sell an income-producing or business-use property and reinvest the profits without immediate tax consequences—as long as you follow the rules.
1. Know What Qualifies
Not every property sale qualifies for a 1031 exchange. The basic rule is that both the relinquished and replacement properties must be:
- Held for investment or used in a trade/business (not a primary residence)
- Of like-kind, which generally includes:
- Commercial to commercial (e.g., retail center to office)
- Commercial to land
- Multifamily to NNN
- Industrial to retail
Example: Selling a duplex in Indianapolis and buying a retail strip center in Greenfield qualifies.
2. Follow the Timelines Strictly
The IRS imposes strict time limits that must be followed:
- 45-Day Identification Rule: You must identify potential replacement properties within 45 days of selling your original property.
- 180-Day Closing Rule: You must close on the new property within 180 days of the original sale.
Missing either deadline can disqualify the exchange and trigger capital gains taxes—so timing is critical.
3. Use a Qualified Intermediary (QI)
You cannot receive the sale proceeds directly. The IRS requires you to use a Qualified Intermediary (QI) to hold the funds between the sale and purchase.
The QI will:
- Facilitate all 1031 documentation
- Handle the transfer of funds
- Ensure compliance with IRS regulations
I work closely with trusted local QIs in Indiana and can recommend the right partner for your needs.
4. Understand Indiana-Specific Considerations
While 1031 exchanges are governed federally, state-level issues can still affect your deal. In Indiana:
- There is no state-level capital gains tax, but income derived from the sale may still affect your Indiana tax liability.
- Indiana has a healthy inventory of exchange-worthy properties, especially in cities like Carmel, Noblesville, Fishers, Zionsville, and Greenwood.
- Be mindful of county-level transfer tax nuances and any zoning or permitting delays that could impact your closing window.
I help investors navigate these local details to keep your transaction smooth and compliant.
5. Choose the Right Replacement Property
This is where strategy meets opportunity. Investors often use a 1031 exchange to:
- Upgrade property class (e.g., move from C-grade to A-grade)
- Switch to lower-maintenance assets (e.g., from multifamily to NNN retail)
- Diversify locations (e.g., move from urban core to suburban growth corridors)
- Increase NOI and long-term ROI
Popular replacement options in Indiana include:
| Property Type | Why It Works in 2025 |
|---|---|
| NNN Retail | Passive income with national tenants |
| Medical Office | Long-term leases, essential services |
| Industrial/Flex Space | Strong demand in logistics corridors |
| Land for Development | Ideal for investors with time to build |
6. Plan Ahead—and Have a Backup
One of the biggest risks in a 1031 exchange is not finding a replacement property in time. That’s why I encourage clients to:
- Start looking before the sale closes
- Have multiple backup properties identified
- Consider off-market deals and private listings
Because I specialize in both listed and off-market commercial inventory, I can help you stay competitive and close on time.
Final Thoughts
A 1031 exchange isn’t just a tax strategy—it’s a growth strategy. When handled correctly, it can help you build wealth, expand your portfolio, and reinvest in smarter, higher-performing properties without the immediate tax hit.
At Annie Scott Realty Group LLC, I work side-by-side with investors, CPAs, attorneys, and QIs to ensure each exchange is compliant, strategic, and successful.
Let’s talk about your next move—and how a 1031 exchange can help you get there.
Photo Credit: Luxury Presence
Sources:
- IRS Publication 544 – Sales and Exchanges
- Federation of Exchange Accommodators
- Indiana Department of Revenue
- CoStar Indiana Market Insights
