1031 Exchange Basics for a San Antonio Rental Owner: Timelines, Rules, and What Actually Trips People Up

A Section 1031 like-kind exchange lets you sell a San Antonio rental and roll the gain into another investment property without paying federal capital gains tax or depreciation recapture at closing. Texas has no state income tax, so the entire benefit here is federal — but for a landlord who bought a rent house on the far West Side in 2014 and is sitting on six figures of appreciation plus a decade of depreciation, that federal bill is the whole game.

This is an overview of how the mechanics actually work on a Bexar County deal, not a tax opinion. The statute is IRC § 1031, the operating regulations are in Treas. Reg. § 1.1031(k)-1, and you should not close an exchange without a CPA and a qualified intermediary already engaged before you sign the sale contract.

What 1031 defers, and what it does not

A valid exchange defers two things: long-term capital gains tax on appreciation, and § 1250 depreciation recapture (currently capped at 25% federal). It does not eliminate them. Your basis carries over into the replacement property, reduced by the gain you deferred, so the liability follows the next property. Landlords who keep exchanging until death can get a stepped-up basis for their heirs — that's the long game most investors are actually playing.

What 1031 does not touch:

• Property taxes. BCAD will reassess the replacement property at its own schedule, and there is no homestead exemption on a rental.
• Transfer costs. Title, escrow, QI fees, and commissions still come out of pocket or out of the exchange funds (with consequences — see boot below).
• Personal residences. Your own home doesn't qualify. Neither does a property you've been flipping — § 1031 requires property "held for productive use in a trade or business or for investment."

The 45/180-day clock

The day you close on the relinquished property (the one you're selling), two clocks start on the same day:

• 45 days to identify replacement property in writing, delivered to your qualified intermediary.
• 180 days to close on replacement property, or the due date of your tax return for that year including extensions — whichever is earlier.

These are calendar days, not business days. They do not pause for weekends, Fiesta, a Spurs playoff run, or a hurricane shutting down a title company in Corpus. If day 45 falls on a Sunday, it's still day 45. Miss either deadline by one day and the entire exchange collapses into a taxable sale.

A common San Antonio failure pattern: landlord lists a Converse rental in March, gets a quick offer, closes in April, and figures they'll "find something" over the summer. Inventory tightens, the replacement they identified on day 44 falls out of contract in July, and now they're past day 45 with no backup identifications. Fully taxable.

The qualified intermediary is mandatory

You cannot touch the sale proceeds. Not for a day, not in a separate account, not "just to move it to the replacement closing." Constructive receipt of the funds blows the exchange.

A qualified intermediary (QI, also called an accommodator) is a third party who:

• Signs an exchange agreement with you before the sale closes.
• Takes assignment of your rights under the sale contract.
• Holds the proceeds in a segregated account.
• Wires funds directly to the replacement closing.

QIs are unregulated at the federal level and lightly regulated in Texas, so vet them. Ask about bonding, segregated vs. commingled accounts, and whether funds are held at a bank you've heard of. The QI must be engaged before the first closing — you cannot retroactively paper an exchange after the sale funds hit your account.

Your title company (Alamo, Independence, Stewart, whoever you're using on the Bexar side) is not your QI. They can coordinate with one, but they don't play that role themselves.

Identification rules: the three options

On or before day 45, you deliver a written, signed identification to the QI. You get three ways to identify:

Rule	What it allows	Typical use
Three-property rule	Identify up to 3 properties, any value	Most single-property swaps
200% rule	Identify any number, total fair market value ≤ 200% of relinquished property	Trading one house into several
95% rule	Identify any number at any value, but must close on 95% of identified value	Rarely used, high-risk

Most San Antonio landlords live inside the three-property rule. Identify your primary target, a realistic backup, and one stretch option. Street address is fine; legal description is safer. Vague descriptions ("a duplex in 78223") don't qualify.

Like-kind is broad for real estate

Since the 2017 tax law, § 1031 applies only to real property, and "like-kind" is read broadly. A single-family rental in Kirby can be exchanged for:

• A fourplex in Government Hill
• Raw land in Medina County held for investment
• A retail strip in Schertz
• A fractional interest in a Delaware Statutory Trust (DST)
• A rental condo in Port Aransas

What doesn't qualify: your primary residence, a second home you use personally, inventory (flips), stock in a REIT, or a partnership interest. A property you lived in that you've recently converted to a rental is a gray area — the IRS generally wants to see it actually held for investment, not just paper-flagged as such for a month before the exchange.

Boot, debt, and the "trade up" rule

To fully defer tax, the replacement property must be:

1. Equal or greater in value than the relinquished property, and
2. Replace the debt that was paid off at the sale (or add equivalent cash).

Any shortfall is "boot" and is taxable to the extent of gain. Two common boot sources:

• Cash boot. You sell for $380,000, net $350,000 after costs, and buy a replacement for $320,000. The $30,000 left in the QI account gets distributed to you and is taxable.
• Mortgage boot. You had a $200,000 loan on the relinquished property and take only $150,000 of financing on the replacement. The $50,000 of debt relief is boot, unless offset by new cash you bring in.

Partial boot doesn't kill the exchange — it just makes part of it taxable. Many landlords knowingly take a little boot to pull cash out for a roof or to deleverage.

Contract mechanics in a Bexar County deal

The TREC 1-4 Family Residential Contract (Resale, currently form 20-17) does not include a 1031 cooperation clause. Add one in Special Provisions or via an amendment (TREC 39-9) on both the sale and the purchase: the other side agrees to cooperate with the exchange at no additional cost or liability to them, and consents to assignment to the QI. Most experienced Bexar listing agents have seen this language. If you're FSBO on either side, have the QI supply template wording.

Title work is routine — the QI is assigned in, not on title. At closing, the HUD/ALTA settlement statement will show the QI as the recipient of net proceeds.

What most people get wrong

• Engaging the QI after the sale closes. Once funds touch your account or your attorney's trust account on your behalf, the exchange is dead. Engage the QI when you go under contract, not at closing.
• Treating the 45 days as flexible. It isn't. Start shopping for replacements before you list the relinquished property. Serious investors have target properties identified before they sign the sale contract.
• Exchanging into a property they want to live in. § 1031 requires investment intent. Converting an exchanged property to a personal residence too quickly invites an IRS challenge. Safe-harbor guidance (Rev. Proc. 2008-16) suggests holding as a rental for at least 24 months with documented rental use before any conversion.
• Forgetting depreciation recapture when estimating the "savings." A landlord who has taken ten years of depreciation on a $250,000 basis has roughly $90,000 of recapture exposure at up to 25%. That's often a bigger number than the capital gains piece.
• Trading down and assuming zero tax. If the replacement is cheaper or less leveraged, you owe tax on the difference. Run the numbers with the CPA before you sign.
• Using a related-party exchange without understanding § 1031(f). Exchanges with family members or entities you control have a two-year holding requirement and tight anti-abuse rules. Easy to trigger, hard to fix.

How this plays with your CPA

A 1031 is not a DIY tax move. Before you list, your CPA should model:

• Adjusted basis on the relinquished property (original cost + capital improvements − accumulated depreciation).
• Projected gain at the target sale price.
• Recapture exposure.
• Debt and equity required in the replacement to fully defer.
• Form 8824 (Like-Kind Exchanges), which reports the transaction in the year of sale.

If you hold the rental in an LLC, the same taxpayer that sells must buy. A single-member LLC that's disregarded for tax is fine; a multi-member LLC taxed as a partnership can be complicated when partners want different outcomes ("drop and swap" or "swap and drop" structures exist but need real planning, not a last-minute decision).

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If you're lining up a replacement property and want to see what's actually trading in Bexar County right now, browse active rentals at /rentals to benchmark rents, or look at /resources for more on depreciation, BCAD protests, and portfolio structure. When you're ready to list a rental you're exchanging out of, /list-your-home is free. For the exchange itself, hire a QI and a Texas CPA who does these regularly — it's one of the few areas where a $1,500 professional fee can save a five-figure tax bill.