If you're selling land in Summit or Wasatch County that has appreciated significantly, a 1031 like-kind exchange is the most direct federal tool for deferring the capital gains tax that would otherwise come due at closing. Used correctly, it lets you roll the full proceeds from one land sale into another property — without the IRS taking its cut first.
This post covers how 1031s work for raw land, the critical timelines, what "like-kind" actually means, and the mistakes land sellers make.
What a 1031 Exchange Does
Under Internal Revenue Code §1031, when you sell real property held for investment or business use and reinvest the proceeds into another "like-kind" property, the federal capital gains tax on the sale is deferred. You don't pay it now — you carry your original cost basis forward into the new property, and the tax comes due when you eventually sell without exchanging.
The deferral can be permanent. If you exchange into a property you hold until death, your heirs receive it with a stepped-up basis — and the deferred gain disappears entirely. This is the combination most sophisticated land investors use.
Does Raw Land Qualify?
Yes. Raw land held for investment qualifies as like-kind to other land, to improved property held for investment, and to commercial real estate. A vacant parcel in Kamas can be exchanged into a commercial building in Salt Lake City, a ranch in Wyoming, or another parcel in Summit County.
What doesn't qualify: your primary residence, property held primarily for sale (dealer property, inventory), and land you intend to develop and sell immediately. The IRS looks at intent — land purchased as an investment qualifies; land purchased to flip does not.
The 1031 Timeline
The two deadlines are non-negotiable and cannot be extended except in federally declared disasters.
The Qualified Intermediary Requirement
You cannot receive the sale proceeds at any point during a 1031 exchange. A Qualified Intermediary (QI) — also called an exchange accommodator — must hold the funds between the close of the relinquished property and the close of the replacement property.
The QI is not regulated at the federal level, so choose carefully. Look for:
· Membership in the Federation of Exchange Accommodators (FEA)
· Fidelity bond and errors & omissions insurance
· Funds held in segregated accounts (not commingled with QI's own assets)
· Years of experience with land and raw property exchanges
How Much Must Be Reinvested?
To defer 100% of the capital gain, you must:
1. Reinvest all net sale proceeds into the replacement property.
2. Purchase a replacement property of equal or greater value than the relinquished property.
3. Replace any debt on the relinquished property with equal or greater debt (or cash equity) on the replacement.
If you take any cash out — called "boot" — that portion is taxable. A partial exchange is still valid; you just pay gains tax on the boot received.
The Bottom Line
A 1031 exchange is not a loophole — it's a congressionally enacted investment incentive that has been in the tax code for over a century. For land investors in the Wasatch Back, it's the primary tool for compounding returns without losing a significant portion of each sale to federal taxes.
Start the process early — ideally 60 to 90 days before your closing — by engaging a QI, reviewing your replacement property options, and coordinating with your CPA on the tax math.