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When it comes to selling your investment property, you may automatically start thinking about capital gains taxes. But you don’t have to! Capital gains taxes and investment property don’t have to go hand-in-hand. In fact, by knowing and using the proper tools, capital gains taxes and investment property can be anything but hand-in-hand.

There is a way to defer paying capital gains taxes when you sell your investment property. It’s called a 1031 exchange. Under Section 1031 of the Internal Revenue Code, a real property owner can sell certain property (e.g. investment property) and then reallocate the proceeds into ownership of like-kind property (perform an “exchange”) and defer paying the capital gains taxes.

To perform a 1031 exchange with investment property and defer capital gain taxes, here’s what you’ll need to know:

After finding a new replacement investment property for your old investment property, you will need to “identify” (ID) the investment property in writing. As a tax payer, you have 45 days to ID a new investment property from the time you have relinquished your previous investment property. You have a total of 180 days to complete the entire exchange transaction and close on a new investment property in order to defer paying capital gains taxes. This deadline starts when the first investment property is relinquished or when the tax payer’s federal tax return is due. It comes down to whichever date comes first that particular year.