Thinking about selling a Richland rental and trading up without a big tax bill this year? A 1031 exchange can be a powerful tool to defer federal taxes when you swap one investment property for another. If you own in the Tri-Cities, you also need to plan around local timelines, recording, and due diligence to keep your exchange on track. In this guide, you will learn the core 1031 rules, the 45 and 180 day deadlines, and a Richland-specific checklist so you can move with confidence. Let’s dive in.
What a 1031 exchange does
A 1031 exchange lets you defer federal taxable gain when you sell real property held for investment or business use and buy other investment real estate of like kind. For real estate, like kind is broad. You can go from a single-family rental to a duplex, a small multifamily to a commercial building, or even into out-of-state property.
Primary residences typically do not qualify. There are narrow exceptions and conversions that can apply, so you should confirm your specifics with a tax professional. You will report the exchange on your federal return using Form 8824.
The two clocks you cannot miss
Two federal deadlines control your exchange timeline. Missing either one can break the exchange.
- The identification period: you have 45 days from the day you close on the property you sell to identify potential replacements in writing.
- The exchange completion period: you have 180 days from that same closing date to acquire your replacement property or properties. If your tax return due date comes earlier, that earlier date controls unless you file an extension.
How identification works
You must identify replacement properties in writing and deliver the list to your Qualified Intermediary or another permitted party by day 45. The list must use an unambiguous address or legal description. You can use one of these rules:
- 3-property rule: identify up to three properties regardless of value.
- 200 percent rule: identify any number of properties as long as the total value does not exceed 200 percent of what you sold.
- 95 percent exception: if you go beyond the other limits, you can still qualify if you acquire at least 95 percent of the total value identified.
Build your Richland 1031 team early
A smooth exchange starts before you list. The right team can help you set realistic timing and avoid costly mistakes.
Qualified Intermediary
In a delayed exchange, a neutral Qualified Intermediary holds your sale proceeds and facilitates the exchange. You cannot receive the funds directly or you risk breaking the exchange. Get your QI engaged in writing before you close the sale.
Local title, escrow, and lenders
Coordinate with a Tri-Cities title and escrow officer who understands Benton County recording. Ask your lender what they need for a payoff through a QI and how long underwriting and appraisals typically take on purchases. Align loan commitments with the 180 day deadline.
CPA or tax attorney
Confirm eligibility, debt replacement strategy, and reporting plans with your tax advisor before you sign contracts. This is especially important if you are considering a reverse or improvement exchange, or any related-party transaction.
Local due diligence in Richland and Benton County
Local steps can affect your timing and budget. Build these checkpoints into your plan.
- Real estate excise tax and closing costs: confirm current Washington and local REET rates and who pays what in a typical Tri-Cities deal. Clarify this in your purchase and sale agreements.
- Recording and title: deeds record with the Benton County Auditor. Ask your escrow team about cutoff times or any occasional delays and add a buffer day if needed.
- Zoning and permits: verify allowed uses with Richland Planning or Benton County Planning if you are outside city limits. If you plan to reposition the property, confirm permits and any code requirements before you commit.
- Environmental screening: if you are near industrial sites or older buildings, consider ordering a Phase I Environmental Site Assessment. Properties near the Hanford Site can prompt extra buyer and lender questions.
- Floodplain and insurance: check local and FEMA maps, especially for riverfront or low-lying areas along the Columbia. Flood status can affect insurance and financing.
- Utilities and assessments: verify water, sewer, and any special assessments with the City of Richland or Benton County Public Works.
Step-by-step timeline for a delayed exchange
Use this practical timeline to stay on track from listing to closing on your replacement.
Pre-listing to pre-sale planning
- Hire your 1031 team: CPA or tax attorney, QI, and a local title or escrow officer familiar with Tri-Cities closings.
- Confirm eligibility: ensure the property is held for investment or business use and that funds will route to the QI at closing.
- Plan your financing: discuss debt replacement with your lender and get payoff estimates. If a reverse or improvement exchange is likely, involve the QI early.
- Prep due diligence: gather tax and utility statements, leases, and order surveys or a Phase I ESA if appropriate.
Between contract and closing on the sale
- Engage your QI and execute exchange documents before closing.
- Confirm the identification process and acceptable wording with your QI.
- Coordinate with escrow so sale proceeds go directly to the QI. Provide QI details to the closing team.
- If environmental or title issues exist, address them now to avoid last-minute delays.
Day 0 to day 45 after the sale
- Identify replacement properties in writing to your QI by day 45 using the 3-property, 200 percent, or 95 percent rules.
- Start inspections, title review, tenant estoppels, and financing on identified properties right away.
Day 46 to day 180
- Close on your replacement property or properties by day 180. Track appraisal, underwriting, and any permit needs so they do not push you over the deadline.
- Confirm deed recording with the Benton County Auditor and the proper flow of funds through the QI.
After the exchange
- Keep complete records, including QI statements, closing statements, recorded deeds, title policies, and environmental reports.
- File Form 8824 with your federal tax return for the year you sold the relinquished property.
Financing and avoiding taxable “boot”
If you receive cash or reduce your mortgage debt compared to what you sold, you may have taxable boot. To fully defer federal tax, aim for replacement property value that is equal to or greater than the property you sold, and replace equal or greater net debt. You can add new financing or additional cash to meet those targets.
Types of exchanges beyond delayed
Most investors use a delayed exchange, where you sell first then buy within the deadlines. Two other options exist for special situations:
- Reverse exchange: you buy the replacement first while an Exchange Accommodation Titleholder holds it until your sale closes. This is more complex and has higher costs.
- Improvement exchange: you use exchange funds for approved improvements under strict rules while the QI or EAT controls the property. All work that counts must be completed within 180 days.
Common Tri-Cities pitfalls to avoid
- Taking constructive receipt of funds. Proceeds must go to the QI, not to you.
- Missing the day 45 identification deadline or using unclear property descriptions.
- Failing to close by day 180 or not aligning loan timelines with the deadline.
- Overlooking title liens, delinquent taxes, or assessments that delay closing.
- Doing a related-party deal without understanding the holding period and scrutiny.
- Keeping weak records that do not show investment intent, such as leases or management agreements.
How long to hold your replacement property
There is no set minimum holding time in the statute. To show investment intent and reduce audit risk, many advisors suggest holding for at least 1 to 2 years. Keep evidence that you held the property for investment, like leases, marketing as a rental, capital plans, and management agreements.
A simple local checklist
- Engage a CPA or tax attorney and a Washington-experienced QI.
- Clear title issues early and confirm tax status with the Benton County Treasurer or Assessor.
- Verify zoning, permits, and floodplain status for intended use.
- Coordinate REET, payoff statements, appraisal timing, and recording.
- Identify replacements by day 45 and close by day 180 through your QI.
- Replace equal or greater value and debt to avoid boot.
- Keep complete records and file Form 8824.
When you plan ahead and use the right local team, a 1031 exchange can help you reposition your Tri-Cities portfolio while deferring federal taxes. If you want hands-on help coordinating timelines, due diligence, and closings across Richland, Kennewick, and Pasco, reach out to Unknown Company to start your 1031 game plan or get your free home valuation.
FAQs
What properties qualify for a 1031 exchange in Richland?
- Real property held for investment or business use generally qualifies, and you can exchange into most other investment real estate of like kind, including out-of-state property.
How do the 45 day and 180 day deadlines work?
- You must identify replacement properties in writing by day 45 after your sale closes and acquire them by day 180, counting calendar days from the sale date.
What is taxable “boot” in a 1031 exchange?
- Boot is cash or non-like-kind value you receive, including a reduction in mortgage debt, and it can create taxable gain to the extent received.
Can I do a reverse or improvement exchange in the Tri-Cities?
- Yes, but both require special structures through a QI or Exchange Accommodation Titleholder and typically involve higher costs and strict timing.
Do Washington state taxes affect my 1031 plan?
- Washington has no state personal income tax, but you should verify the current REET rate and any state tax considerations with a Washington tax specialist.
How long should I hold the replacement property after an exchange?
- There is no statutory minimum, but many advisors recommend holding 1 to 2 years and keeping clear records to demonstrate investment intent.
