Thinking about swapping a St. Simons rental for something that cash flows better without a big tax hit this year? You are not alone. Many local investors want to level up, but the rules and timelines around 1031 exchanges can feel intimidating. This guide breaks down the essentials in plain English so you can plan with confidence and avoid costly mistakes. You will learn how a 1031 works, the strict 45 and 180 day deadlines, local coastal factors to watch, and practical scenarios and checklists tailored to St. Simons Island. Let’s dive in.
What a 1031 exchange actually does
A 1031 exchange lets you defer federal capital gains tax and depreciation recapture when you sell an investment or business property and reinvest in other like‑kind real estate. The goal is deferral, not forgiveness. If you later sell without another qualifying exchange, the deferred tax becomes due.
According to the IRS, only real property qualifies after the 2017 tax law changes. That includes rentals, multi‑family, commercial, and land held for investment. Personal residences and flips generally do not qualify unless converted to investment use and held as such. For an overview, review the IRS guidance on like‑kind exchanges and Publication 544:
- See the IRS page on like‑kind exchanges for real estate tax tips: IRS Like‑Kind Exchanges
- For definitions and tax treatment details, read IRS Publication 544
What counts as like‑kind on St. Simons
Like‑kind is broad for real property. On St. Simons Island and in Glynn County, common eligible options include:
- Coastal condos used as investment rentals
- Duplexes and small multi‑family buildings
- Small commercial such as retail, office, or restaurant spaces
- Land or development parcels held for investment
- Certain fractional interests like TICs or DSTs when properly structured
The key is how you hold and use the property. Investment or business use is required. Personal use can disqualify a property, so document rental history and keep your records clean.
Exchange structures at a glance
Most St. Simons investors use one of three structures:
- Forward exchange. You sell your relinquished property first. A Qualified Intermediary holds the proceeds and uses them to buy your replacement property.
- Reverse exchange. You acquire the replacement property first. This is more complex and typically uses an Exchange Accommodation Titleholder.
- Improvement exchange. You use exchange funds to improve or build on the replacement property during the exchange period. This requires careful structuring and tight coordination.
Deadlines and identification rules
Two fixed federal timelines control every exchange. They run at the same time and cannot be extended.
- Identification period. You have 45 days from the relinquished property’s closing to identify your replacement property or properties in writing and deliver it to your Qualified Intermediary.
- Exchange period. You have 180 days from that same closing date to acquire the replacement property and complete the exchange.
Identification must be unambiguous and follow one of these rules:
- 3‑property rule. Identify up to three properties of any value.
- 200% rule. Identify any number of properties as long as their total fair market value does not exceed 200% of what you sold.
- 95% rule. If you identify more than allowed under the other rules, you must acquire at least 95% of the total value identified.
To fully defer tax, match or exceed both value and debt. If you take cash out you create cash boot, which is taxable. If your net debt goes down you create mortgage boot, which is also taxable.
Why St. Simons details matter
Coastal markets add variables that affect feasibility and timing.
- Flood risk and insurance. Many St. Simons properties require flood insurance. Premiums, flood zones, and elevation can change your numbers and your lender’s approval. You can review local maps through the FEMA Flood Map Service Center.
- HOA and short‑term rental rules. HOA bylaws and local rules can limit STRs, which may affect rental strategy and investment use documentation.
- Coastal construction and environmental rules. Marsh protection, coastal buffers, and permits can slow down improvement exchanges. Finishing work within 180 days takes tight planning.
- Lender timelines. Some lenders have stricter underwriting for flood zones or STR properties. Make sure your financing schedule fits the 180 day window.
Local scenarios to consider
Use these examples as thinking tools, not tax advice.
Scenario 1: Condo to duplex
You sell a St. Simons rental condo and identify a duplex inland. Watch your identification window and plan around HOA rental rules. If the duplex is cheaper or you reduce debt, you may recognize boot. Full deferral requires equal or greater value and debt.
Scenario 2: Duplex to small commercial storefront
You shift from residential to a small commercial space near a shopping corridor. Residential property depreciates over 27.5 years, while commercial uses 39 years. Consider how that affects your cash flow, reserves, and tax planning alongside insurance and zoning requirements.
Scenario 3: Single rental to improvement exchange
You buy a property that needs work and want to use exchange funds for renovations. Improvement exchanges can work, but construction must be completed within the 180 day period and title must be held in the needed structure during the process. Coordinate early with a QI and contractors.
Step‑by‑step checklist for St. Simons investors
Use this checklist to keep your exchange on track.
- Confirm investment use. Document rental history and business intent for the property you are selling.
- Engage a Qualified Intermediary before you close. You cannot touch the sale proceeds. The QI holds funds and prepares exchange documents.
- Consult a tax pro. Work with a CPA or tax attorney familiar with 1031 rules and Georgia returns.
- Pre‑identify targets. Shortlist replacement properties before you sell so you can meet the 45 day deadline.
- Verify flood, insurance, and HOA details. Get quotes and check flood zones and rental rules for each candidate.
- Plan for permits and contractors. If improving the replacement property, confirm scope, permits, and timelines fit within 180 days.
- Line up financing. Secure lender pre‑approval and confirm the closing schedule will fit your 180 day window.
- Choose your ID strategy. Decide whether the 3‑property rule or 200% rule fits your plan and deliver written identification to the QI on time.
Choosing a Qualified Intermediary
Your QI is central to a successful exchange. Do your homework.
- Check credentials and track record. Look for membership in the Federation of Exchange Accommodators and ask for references.
- Confirm bonding, insurance, and custody. Understand where and how your funds are held, and what protections are in place.
- Read the agreement. Review fees, how proceeds are invested, and what happens if the QI defaults or goes bankrupt.
- Clarify deadlines and communication. Make sure the QI will receive your identification by day 45 and can execute closings by day 180 based on your instructions.
Georgia and local tax items to check
Georgia generally follows federal tax treatment on income, but you should confirm current guidance and any filing specifics. For current information, consult the Georgia Department of Revenue or your Georgia tax advisor. Also review Glynn County property tax assessments and millage rates so you can model holding costs after the exchange.
Common pitfalls to avoid
A few mistakes can jeopardize deferral. Stay clear of these:
- Taking or controlling sale proceeds, which creates constructive receipt
- Picking a QI without proper safeguards
- Missing or vague property identification
- Using exchange funds for personal expenses during the 180 days
- Underestimating coastal permitting and insurance timing on improvement exchanges
- Trying to exchange flips or inventory without proper conversion and holding period
How A36 Group helps investors here
You do not have to navigate this alone. A36 Group pairs veteran‑led discipline with local St. Simons and Glynn County expertise to help you plan and execute a clean exchange. We help you source and evaluate replacement options across condos, duplexes, small multi‑family, commercial storefronts, and land. We coordinate timelines, keep your search aligned with the 45 and 180 day windows, and leverage brokerage‑backed investor resources so you can move with confidence. For tax and legal items, we coordinate with your CPA and attorney.
If you are considering a 1031 exchange on St. Simons Island, reach out for a no‑pressure strategy conversation with Chuck Hudson. We will map your goals, discuss local risks like flood and permitting, and build a step‑by‑step plan you can execute.
FAQs
What are the 1031 exchange deadlines I must meet?
- You have 45 days from the sale to identify replacement properties in writing and 180 days from the sale to close on them; both timelines run at the same time.
Can I use a St. Simons vacation condo in a 1031 exchange?
- It depends on how you use it; the property must be held primarily for investment, and frequent personal use can make qualification difficult under IRS rules.
What happens if I miss the 45 day identification window?
- The exchange fails and your gain becomes taxable for that sale; the deadlines are fixed and cannot be extended.
Can I exchange into a cheaper property on St. Simons?
- Yes, but any cash you take out or reduction in your debt creates taxable boot; full deferral requires equal or greater value and debt.
Can I exchange with a relative or related entity?
- Related party rules under Section 1031 impose special limits and holding periods; consult a tax advisor before proceeding with related parties.
How do mortgages and debt affect a 1031 exchange?
- If your replacement property has less debt than what you paid off, you may create mortgage boot that is taxable; structure financing to match or exceed your prior net debt.
