You found the perfect Austin infill lot or you’re selling a redevelopment site and want to keep your gains working. A 1031 exchange can help you trade into your next project without paying federal capital gains today. The rules are strict, and Austin’s permitting steps can affect your timing and structure. In this guide, you’ll learn the key deadlines, how local land use rules factor in, and the steps to keep your exchange on track. Let’s dive in.
1031 basics for Austin infill
A 1031 exchange lets you defer federal gain when you sell real property held for investment or business use and buy other like‑kind real property. Since 2017, only real property qualifies. The IRS explains the core rules and reporting on Form 8824 in the Instructions for Like‑Kind Exchanges. You must follow the 45‑day identification period and the 180‑day completion rule precisely. Missing either deadline can disqualify the exchange.
“Like‑kind” is broad. Vacant land is generally like‑kind to improved property, and different property types still qualify if both are real property for tax purposes. Any cash or non‑qualifying property you receive is taxable “boot.” You report the exchange on Form 8824 for the year of the sale.
- Read the IRS overview: Instructions for Form 8824
Austin land‑use rules matter
The IRS’s final regulations look to state and local law when defining what counts as real property. That means Austin items like recorded easements, long‑term leasehold interests, plats, and development rights can affect how your exchange property is treated. Practitioner summaries of the final rules explain why local classification matters for 1031 planning.
Austin is also updating its process for small projects. City initiatives such as the HOME amendments, Site Plan Lite exemptions for smaller projects, and Infill Plats aim to streamline certain subdivisions and small‑scale redevelopment. These changes can influence whether your 45‑day identification and 180‑day closing windows are realistic.
- See a practitioner summary of the final regs: Final like‑kind regulations and local law test
- City materials on HOME, Site Plan Lite, and Infill Plats: Austin Planning Commission agenda and Land Development Code resources
Pick the right exchange structure
Forward exchange
This is the most common path. You sell the relinquished property, a Qualified Intermediary holds the proceeds, you identify replacement property within 45 days, and you close within 180 days. It works best when you already have a realistic target or two and lender timing fits the schedule.
Reverse exchange
In competitive Austin infill areas, you may need to buy the replacement lot or building first. A reverse exchange uses an Exchange Accommodation Titleholder under an IRS safe harbor so an accommodator can hold title while you sell your relinquished property. This structure is more complex and often more expensive, but it helps when the right site appears before you can sell.
- IRS safe harbor details: Rev. Proc. 2000‑37 and 2004‑51
Improvement exchange
If you must complete site work or add improvements during the exchange, an improvement exchange can let you roll construction into the replacement property value. The schedule is tight, and some structures require improvements to be placed in service and received by you within the 180 days. Reverse and improvement features are often combined for redevelopment lots.
- Practical discussion of construction exchanges: Improvement and reverse exchange considerations
Timeline and ID rules
Two clocks run at the same time: 45 days to identify and 180 days to close. You can use the three‑property rule, the 200 percent aggregate value rule, or the 95 percent rule to identify within your 45‑day window. Plan your inspections, underwriting, and entitlement review so you are ready to close before day 180. When in doubt, start the identification list early and keep backups.
- Quick overview of timeline and ID rules: 1031 exchange timeline and options
Financing and title logistics
Debt matters. To fully defer tax, you usually need to replace both equity and debt levels on the new property or add cash to cover any shortfall. Coordinate lender commitments, appraisals, and closing dates with your 45 and 180‑day milestones. Contracts should allow assignment to a Qualified Intermediary and escrow should be set to avoid constructive receipt of funds.
- Choosing a Qualified Intermediary and best practices: FEA guidance on QIs
- Why segregated escrow and custody safeguards matter: Qualified escrow overview
Austin feasibility factors
Local constraints can change your schedule. Impervious cover limits, drainage and floodplain review, utility capacity, compatibility buffers, and conditional overlays can add time or require redesign. If your replacement property needs entitlements or site plan work, a reverse or improvement structure may be safer than a simple forward exchange. Build your exchange calendar around the likely permit path for your specific lot.
- City reference for code and process context: Austin Land Development Code resources
Vacant vs improved lots
A vacant infill lot can qualify as either the relinquished or replacement property if you held it for investment or business use. Vacant land is generally like‑kind to improved property. What does not qualify is dealer inventory held primarily for sale. Document your intent and use pattern, and report the exchange on Form 8824.
- IRS guidance and reporting: Instructions for Form 8824
Property taxes after redevelopment
Texas does not have a personal state income tax, but Austin property taxes are significant. When you add units or complete new construction, Travis Central Appraisal District will typically include those improvements in your assessed value, which can increase your tax bill. Residence homestead limits and certain circuit‑breaker rules exist under state law, but eligibility and timing vary. Plan for higher annual property taxes after your project, and know you can appeal your valuation.
- How appraisal districts value property and treat improvements: Texas Comptroller on valuing property
Quick‑start checklist
- Hire a Qualified Intermediary and a 1031‑savvy CPA or tax attorney before you list or sign a contract.
- Decide early if you need a forward, reverse, or improvement exchange and confirm your QI can support that structure.
- Line up lender pre‑approval, appraisal timing, and closing dates that fit the 45 and 180‑day windows.
- Document investment intent for both properties; avoid dealer treatment.
- For sites needing entitlements or site work, model the Austin permit path and consider a reverse or improvement exchange if timing is tight.
- Coordinate title and escrow so proceeds never pass to you directly.
Common pitfalls
- Missing the 45‑day identification or 180‑day completion deadlines.
- Mishandling proceeds or using an inexperienced, uninsured QI.
- Treating developer inventory as eligible exchange property.
- Ignoring related‑party limits and post‑exchange restrictions.
- Underestimating Austin permit steps that push you past 180 days.
- Forgetting that redevelopment can raise your property tax bill.
Work with a local team
A strong 1031 outcome in Austin comes from early planning and clean execution. You need a QI you trust, a lender aligned to your dates, and local guidance on feasibility and permitting before you commit to a site. If you want a project‑capable brokerage to help source or market central and West Austin infill property, coordinate due diligence, and keep your exposure polished, talk to Brian Copland.
FAQs
Can I 1031 a vacant Austin infill lot?
- Yes, if you held it for investment or business use. Vacant land is generally like‑kind to improved property, but dealer inventory does not qualify.
What if I must buy the replacement lot before I can sell?
- That is a reverse exchange. An accommodator can hold title while you sell your relinquished property, then you finish within the standard time limits.
Do entitlements or zoning approvals affect 1031 treatment?
- They can. The IRS looks to state and local law when defining real property, so how Austin treats an interest or approval can matter for 1031.
How strict are the 45‑day and 180‑day deadlines?
- Very strict. Both periods run from your sale date and missing either usually disqualifies the exchange.
Will a 1031 exchange keep my Austin property taxes from rising after I build?
- No. 1031 defers federal income tax. Local appraisal and property taxes operate separately and often increase with new improvements.
Is there a minimum time I must hold the properties?
- There is no fixed statutory minimum. The IRS looks at facts and circumstances to decide whether you held each property for investment or business use.
