Thinking about selling one investment and rolling the gains into a rental or mixed-use property in 12 South? The opportunity can be strong, but the 1031 timeline moves fast and the rules are strict. You want clarity on what qualifies, how to hit the deadlines, and what to watch in this Nashville neighborhood. This guide walks you through the essentials so you can move with confidence. Let’s dive in.
What a 1031 exchange is
A 1031 exchange lets you defer federal capital gains and depreciation recapture taxes when you swap real property held for investment or business use for other like-kind real property. Your personal residence does not qualify. To keep deferral, you must follow the process, use a qualified intermediary, and report the exchange on Form 8824 with your tax return.
Key deadlines: 45 and 180 days
Two firm timelines control a delayed exchange. You have 45 calendar days after the sale of your relinquished property to identify replacement properties in writing. You must close within 180 calendar days of that sale to complete your exchange. The 45- and 180-day periods run at the same time, and the deadlines are strict.
Identification rules made simple
You can identify replacement properties using one of three methods:
- Three-property rule: Identify up to three properties of any value.
- 200% rule: Identify any number of properties as long as their total value does not exceed 200% of what you sold.
- 95% rule: If you go over those limits, you must acquire at least 95% of the total value you identified.
Work with your qualified intermediary to submit precise written identification by Day 45. Missing this step can invalidate the exchange.
What qualifies in 12 South
In 12 South, eligible replacement options typically include single-family rentals, duplexes or triplexes, small multifamily buildings, and mixed-use properties with retail at street level and apartments above. You can buy a property with both residential and commercial space as long as you hold it for investment or business use. The property’s use should be clear and consistent with an investment intent.
Zoning and short-term rental checks
Before you identify a property, review local zoning, overlays, and historic rules that may limit changes to use, additions, or signage. If you plan to operate short-term rentals, confirm current Metro Nashville short-term rental rules and permitting. These regulations can affect whether your business plan is viable and whether a property is a fit for your exchange.
Financing and timing tips
Plan financing early so it fits your exchange window. Lenders typically underwrite 1031 buyers like other investors, but you must line up loan terms and closing timing with your qualified intermediary. If your replacement mortgage debt is lower than what you paid off on the sale, you may create taxable boot unless you add cash or other financing to make up the difference. Coordinate this with your lender and tax advisor.
Due diligence essentials
Treat your 12 South search like any investment purchase. Review title and any recorded restrictions. Inspect building systems, structure, and environmental risks, especially in older properties. For mixed-use, review commercial lease terms and obligations along with residential leases. Confirm permitted uses and insurability with your team before you close.
Step-by-step timeline
- Pre-plan with advisors: Engage a qualified intermediary and a 1031-experienced CPA or tax attorney. Define your target property type, budget, and financing strategy.
- Prepare and sell: List your relinquished property and have the exchange agreement in place so proceeds go to the qualified intermediary at closing.
- Day 0: The sale closes and the 45-day and 180-day clocks start.
- By Day 45: Submit written identification to your qualified intermediary using the proper format.
- By Day 180: Close on one or more of the identified properties.
- After closing: File Form 8824 with your tax return and keep all exchange records.
Avoid these pitfalls
- Missing the 45-day or 180-day deadlines.
- Touching sale proceeds instead of having the qualified intermediary hold funds.
- Vague or late property identification.
- Reducing debt without replacing it with new financing or cash, which can create boot.
- Flipping the replacement property too quickly, which can raise questions about investment intent.
- Changing title vesting between sale and purchase without tax counsel.
Advanced options when timing is tight
If you must buy before you can sell, consider a reverse exchange. If you need to complete construction or renovations before you can receive the property, explore an improvement exchange. Both involve additional structure and cost, so plan them with your qualified intermediary, CPA, and closing team early.
Why 12 South works for investors
12 South is a walkable Nashville neighborhood with a mix of renovated cottages, newer homes, small multifamily buildings, and mixed-use properties. The variety of property types creates options for different budgets and strategies. Your main work is picking a property type that fits your plan, then aligning zoning, leasing, and financing within your 1031 timeline.
Build your 12 South plan
- Clarify goals: Single-family rental, duplex, or mixed-use. Decide your hold strategy and target rent or NOI.
- Verify rules: Check zoning, overlays, and any short-term rental requirements before you identify.
- Coordinate funding: Match or exceed prior debt or add cash to avoid boot.
- Expand your list: In a competitive area like 12 South, identify backups so you can pivot and still hit Day 45.
- Assemble your team: Qualified intermediary, CPA or tax attorney, local broker, title/closing.
Ready to move on a 12 South opportunity with a 1031 exchange? Get a hands-on partner who coordinates timing, due diligence, tenant and lease reviews, and investor-focused negotiations. Contact Unknown Company to start your plan today. Let’s find your way HOM.
FAQs
What is a 1031 exchange for real estate?
- It is a tax-deferred swap of investment or business real estate for like-kind real estate, with strict identification and closing deadlines and reporting on Form 8824.
How long do I have to identify a 12 South property?
- You have 45 calendar days after the sale of your relinquished property to identify replacement properties in writing to your qualified intermediary.
What can I buy in 12 South with a 1031 exchange?
- Eligible options include single-family rentals, duplexes or triplexes, small multifamily, and mixed-use buildings held for investment or business use.
Do short-term rentals in Nashville qualify for a 1031 exchange?
- Properties can qualify if held for investment or business use, but you must confirm current Metro Nashville short-term rental rules and obtain required permits.
What is boot in a 1031 exchange?
- Boot is cash or non-like-kind property you receive, or debt you fail to replace; it is taxable up to the gain you realized.
Why do I need a qualified intermediary (QI)?
- A QI holds sale proceeds and facilitates documents; if you receive funds directly, the exchange can be disqualified.
Can I change the ownership entity between sale and purchase?
- Changing how title is held can cause issues; coordinate vesting with tax counsel so the exchange remains valid.
What if I cannot sell before I find a 12 South property?
- You may consider a reverse exchange, which lets you acquire replacement property before selling, using a special structure.
