Using a 1031 Exchange for Eastside Properties

Thinking about selling one Santa Fe rental and buying another in the Historic Eastside without taking a big tax hit right now? You are not alone. In a high‑demand, low‑inventory area like the Eastside, planning your 1031 exchange early can preserve your capital and your timeline. In this guide, you will learn how a 1031 works, the key deadlines, the local historic and rental rules that matter, and a step‑by‑step plan to execute with confidence. Let’s dive in.

1031 exchange in plain words

A 1031 exchange lets you defer federal capital gains and some depreciation recapture when you sell investment or business real property and buy new “like‑kind” real property. Deferral is not forgiveness; taxes are due when you sell in a taxable deal later. After 2017, like‑kind applies only to real property, and U.S. property is not like‑kind with foreign property. You report the exchange on Form 8824; the IRS explains the rules and timelines in the Instructions for Form 8824. See the IRS guidance on like‑kind exchanges.

Deadlines you cannot miss

45‑day identification window

You must identify your replacement property in writing within 45 days after you close the sale of the relinquished property. You can identify multiple options, but the rules are strict on format and timing. Missing this window usually kills the exchange. The IRS timeline overview outlines acceptable identification methods.

180‑day acquisition deadline

You must acquire the replacement property within 180 days of your sale. For most exchangers, the 180‑day calendar limit is treated as absolute. If your tax return due date arrives sooner, special timing can apply, so plan with your CPA. Review the IRS timing rules before you start.

Why you need a Qualified Intermediary

You cannot touch the sale proceeds. A Qualified Intermediary (QI) holds the funds and moves them into your replacement purchase to keep your exchange compliant. Hire the QI before you close your sale and confirm they can support any reverse or complex structure you might need. The IRS guidance explains the QI’s role.

Historic Eastside rules that shape your plan

The Historic Eastside sits inside Santa Fe’s protected historic districts, where exterior changes, additions, and many permits require review. The City’s Historic Preservation Division and the Historic Districts Review Board may need to approve proposed work, which can influence renovation timelines and your 180‑day window. If you anticipate alterations, bake review time into your plan. Learn more from the City’s Historic Preservation Division.

Short‑term rental limits

If you expect short‑term rental income, confirm eligibility first. The City of Santa Fe regulates STRs under 30 days with a permit system, a citywide cap on residential permits, proximity limits, one permit per natural person, operator response requirements, listing display rules, and limits on rental frequency in residential zones. City permits are generally not transferable with a sale, so do not assume an existing listing will carry over. Review the City’s Short‑Term Rental rules. If your property is in unincorporated Santa Fe County, different requirements apply under the County’s ordinance; check the County’s STR ordinance information.

Taxes and transfer charges

Local measures can affect your deal math. Santa Fe voters approved a tax targeting residential sales above $1 million to fund housing initiatives, and the measure has faced legal challenge. Always confirm current status, as such taxes can change your net proceeds or cash needed for the replacement purchase. See reporting on the high‑value sale tax from the Associated Press. For ongoing expenses, New Mexico generally assesses property at one‑third of market value, with local mill levies setting the final bill. Use the County’s tools and resources via the Santa Fe County Assessor to estimate taxes by parcel.

Market reality on the Eastside

Historic Eastside is compact, character‑rich, and supply‑constrained, which pushes prices higher than many other parts of the county. Recent market snapshots in 2024 and 2025 showed Historic Santa Fe medians significantly higher than countywide medians. Review current figures and trends on Rocket’s Historic Santa Fe market page before you set your 1031 targets. Expect to compete and be ready to add cash if your replacement property exceeds your sale price, especially to avoid taxable “boot.”

Exchange structures that fit Santa Fe

• Forward exchange. The most common path: sell first, then buy within the 45/180 windows. Funds must sit with the QI to qualify. See the IRS overview.
• Reverse exchange. If you must buy first, an Exchange Accommodation Titleholder holds title until you sell your relinquished property. These are more complex and costly; allow extra time. Learn how a QEAA works via Investopedia’s explainer.
• DST or TIC interests. When local inventory is scarce or you want passive ownership, some investors use Delaware Statutory Trusts or Tenancy‑in‑Common interests as replacement property. These are specialized vehicles with sponsor and liquidity considerations. See an overview in Kiplinger’s 1031 playbook.

Step‑by‑step plan for an Eastside 1031

• Clarify use and timing. Confirm the property is held for investment or business use and outline your target close dates.
• Engage tax counsel early. A CPA or tax attorney can confirm eligibility, depreciation recapture impacts, and state treatment. New Mexico generally conforms to federal 1031 rules, but details matter. See Thomson Reuters’ overview of 1031 conformity.
• Hire a QI before listing. Do not let sale proceeds touch your account. Confirm the QI can support reverse exchanges if needed.
• Pre‑screen replacement options. Verify historic district status and whether planned renovations need approvals. If you plan STR income, check City or County rules and permit availability.
• Model your numbers. Verify any local transfer tax exposure and request an Estimated Property Tax Levy. Match or exceed your sale price and debt to minimize taxable boot.
• Line up financing. If you had debt on the relinquished property, replace equal or greater debt or add cash. Coordinate appraisals early to fit the 180‑day clock.
• Tighten title and surveys. In older Eastside parcels, confirm legal descriptions, easements, and any acequia rights. Align escrow milestones with QI requirements.
• Document and file. Keep your identification notices and QI statements. File Form 8824 with your federal return per the IRS instructions.

Common pitfalls to avoid

• Missing the 45‑day identification or 180‑day closing deadline.
• Receiving funds directly instead of using a Qualified Intermediary.
• Assuming short‑term rentals are allowed without checking permits, caps, and proximity rules.
• Underestimating historic review timelines for exterior work or additions.
• Ignoring possible local transfer taxes on high‑value sales that change your net and loan needs.

Ready to trade into or out of a Historic Eastside investment with a clear plan? Get local guidance, realistic timelines, and hands‑on coordination from Leland Titus and move with confidence in Santa Fe’s most storied neighborhood.

FAQs

Can I use a 1031 exchange for my personal home in Santa Fe’s Historic Eastside?

• Generally no. 1031 covers property held for investment or business use, not primary residences; speak with a CPA about options and Form 8824 requirements.

Do Santa Fe’s short‑term rental permits transfer to a buyer on the Eastside?

• City permits are generally not transferable, and new permits face caps and proximity rules; verify eligibility and timing before you close.

Does New Mexico recognize 1031 exchanges for state taxes?

• New Mexico generally conforms to federal 1031 treatment, but you should confirm specific state details with a New Mexico tax professional.

What if I need to buy before I sell in a tight Eastside market?

• Consider a reverse exchange using an accommodation titleholder; it adds cost and complexity, so involve your QI and lender early.

How do local transfer taxes and property taxes affect my 1031 budget?

• A high‑value sale tax may apply to certain transactions, and property taxes are based on one‑third of market value; model these costs into your replacement purchase.

Can I identify more than one replacement property in Santa Fe?

• Yes. You may identify multiple properties within 45 days if you follow IRS identification rules; this can hedge limited Eastside inventory.