How does a 1031 exchange work in Arizona? It follows federal law. You sell investment or business real property and buy like-kind real property, deferring the gain. In a deferred exchange, you must identify replacement property in writing within 45 days and close on it within 180 days or by your tax return's due date, whichever is earlier. A qualified intermediary holds the money in between.
Does Arizona add its own rules? Arizona's income tax starts from federal adjusted gross income (A.R.S. 43-1001), so a gain deferred federally generally stays out of that starting figure too.
Data note: Rules come from IRS Publication 544 (2025), the Instructions for Form 8824 (2025) and A.R.S. 43-1001. This is general information, not tax advice. No market statistics are included in this post.
1031 Exchange Rules at a Glance
- Qualifies: real property held for business or investment
- Doesn't qualify: your personal residence, or property held primarily for sale
- Identify: within 45 days, in a signed writing
- Close: within 180 days or by your return's due date (with extensions), whichever is earlier
- Identification limit: 3 properties, or any number up to 200% of the value you gave up
- Middleman: a qualified intermediary; your agent or a relative can't serve
- Report: IRS Form 8824
What Qualifies as Like-Kind
Real Property Only
Since 2018, section 1031 applies only to real property held for use in a trade or business or for investment. Equipment and vehicles no longer qualify, and neither does real property held primarily for sale, such as a fix-and-flip.
Broad Within Real Estate
Most investment real estate is like-kind to other investment real estate, so a Scottsdale rental house can generally be exchanged for a Phoenix duplex or commercial property. But U.S. property and foreign property are not like-kind.
Homes and Vacation Rentals
A home used solely as your personal residence doesn't qualify. For a dwelling unit you've rented out or used personally, the IRS points to Revenue Procedure 2008-16 for a safe harbor. Read our second home guide if you're weighing a part-time residence.
The Deadlines, Step by Step
- Sell the relinquished property, with proceeds going to the qualified intermediary
- Day 45: identify replacement property in writing, signed, described by address or legal description
- Day 180 (or your return's due date, if earlier): receive the replacement property
- File Form 8824 with that year's return, and for two years after if a related party is involved
Miss a deadline and the transaction is treated as a sale.
The Identification Rules
- Three-property rule: up to 3 properties, regardless of value
- 200% rule: any number, if their total value is no more than double what you gave up
- 95% exception: if you go over, it can still work if you acquire at least 95% of the total value identified
Where Exchanges Go Wrong
- Touching the money. Actual or constructive receipt of the proceeds ruins the deferral, which is why a qualified intermediary is standard. Related parties and your agents are "disqualified persons" and can't be your QI.
- Taking boot. Cash or other non-like-kind property you receive is taxable, and part may be depreciation recapture.
- Mixing up closing costs. Brokerage commissions, attorney fees and deed preparation fees count as exchange expenses. Property tax and rent prorations, security deposits and repairs don't.
- Related-party flips. If you exchange with a relative and either of you sells within 2 years, the deferred gain generally comes due.
“A 1031 exchange is really a real estate timeline wearing a tax costume. Forty-five days goes fast in a competitive Scottsdale market, so I like to start touring replacement properties before the sale even closes. Have your CPA and qualified intermediary lined up before you sign a listing agreement.”
— Elizabeth Vijan, Tackett Team, eXp Realty
What About Arizona Tax?
Under A.R.S. 43-1001, Arizona gross income for individuals is federal adjusted gross income, subject to Arizona's adjustments. In practice, a properly completed federal exchange generally keeps the deferred gain out of Arizona's starting point. Taxable boot doesn't get that treatment. See our Arizona capital gains tax guide for how a regular sale is taxed.
Frequently Asked Questions
What are the 1031 exchange rules in Arizona?
Federal rules apply: investment real property, 45 days to identify, 180 days to close.
Can I do a 1031 exchange on my primary residence?
No. A home used solely as your residence doesn't qualify.
How many properties can I identify in a 1031 exchange?
Three, or any number up to 200% of the value you gave up.
Does Arizona tax 1031 exchange gains?
Arizona starts from federal AGI, so deferred gain generally isn't included.
Planning Your Next Investment Move?
I'll help you time the sale and the search so your 45 days are spent choosing, not scrambling. Thinking of holding instead? Read should I sell or rent my house.
Elizabeth Vijan | Tackett Team, eXp Realty
Scottsdale & Phoenix Real Estate
Let's Talk · Call or text 602-885-7752
Sources: IRS Publication 544: Sales and Other Dispositions of Assets · IRS: Instructions for Form 8824 · A.R.S. 43-1001: Definitions
Disclaimer: General information, not tax or legal advice. 1031 exchanges have strict rules; work with a CPA, tax attorney and qualified intermediary. Information deemed reliable but not guaranteed. Equal Housing Opportunity.
Tackett Team, eXp Realty · Get in touch