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You've owned a rental for years, it's worth a lot more than you paid, and you're ready to sell. The tax bill is what stops most investors: federal capital gains, depreciation recapture, the 3.8% investment income tax, and Ohio income tax can easily take a quarter of your profit. A 1031 exchange lets you defer all of it if you reinvest in another investment property and follow the rules exactly. This guide covers those rules, what's specific to Ohio in 2026, what the exchange saves with real numbers, and how to exchange into Toledo rentals without blowing the deadlines.
The short answer
Ohio follows the federal 1031 rules, so a properly structured exchange defers both federal tax and Ohio's 2.75% income tax on the gain. You must use a qualified intermediary to hold the sale proceeds, identify replacement property in writing within 45 days, and close within 180 days (or by your tax return due date, if earlier). To defer everything, buy property of equal or greater value and reinvest all of your cash. Ohio does not withhold tax when nonresidents sell and does not track gains after you exchange out of state.
45 days
To identify replacement property in writing
Treas. Reg. §1.1031(k)-1
180 days
To close, or your tax return due date if sooner
IRS Form 8824 instructions
2.75%
Ohio's flat 2026 income tax rate, which applies to capital gains
Ohio House Bill 96
25%
Maximum federal rate on depreciation recapture from real estate
Internal Revenue Code
How a 1031 Exchange Works, Step by Step
Section 1031 of the Internal Revenue Code lets you swap one investment property for another and postpone the tax on your gain. In practice, almost every exchange is a "delayed" exchange: you sell first, then buy.
- Hire a qualified intermediary (QI) before you close the sale. You sign an exchange agreement, and your sale contract is assigned to the QI.
- Close the sale. The proceeds go straight to the QI. If the money touches your bank account, the exchange fails.
- Identify replacement property within 45 days. Send a signed, written list to the QI.
- Buy one or more identified properties within 180 days. The QI wires the funds to closing.
- Report the exchange on IRS Form 8824 with your tax return. Your old basis carries over to the new property, so the tax is deferred, not forgiven.
The Rules That Make or Break an Exchange
| Rule | What it means in practice |
|---|---|
| Like-kind real property | Both properties must be U.S. real estate held for investment or business use. A rental house can be exchanged for a duplex, an apartment building, land, or commercial property. Your home and property bought to flip don't qualify. |
| Qualified intermediary | A third party must hold the sale proceeds. Receiving or controlling the money, even briefly, makes the sale taxable. |
| 45-day identification | Identify replacement properties in a signed, written document delivered to the QI by midnight of day 45. There are no extensions for weekends or holidays. |
| Identification limits | Name up to three properties of any value; or any number if their total value is no more than 200% of what you sold; or any number if you end up buying at least 95% of the total value identified. |
| 180-day closing | Close within 180 days of the sale or by the due date of your tax return for that year, including extensions, whichever comes first. For sales late in the year, file an extension. |
| Same taxpayer | The person or entity that sells must be the one that buys. A single-member LLC you own is generally treated as you; a different partnership is not. |
| Equal or greater value and full reinvestment | To defer all the tax, buy property worth at least as much as your net sale price and reinvest all of your cash. Any cash you keep or debt you don't replace (with new debt or added cash) is taxable "boot." |
| Related parties | Exchanges with family members or related entities are allowed only if neither side sells the property within two years. |
Sources: IRS Instructions for Form 8824; 26 CFR §1.1031(k)-1; 26 U.S.C. §1031.
What's Different When the Property Is in Ohio
Section 1031 is federal law, so the rules above apply in every state. What changes from state to state is how the state taxes the gain and whether it adds its own requirements. Ohio is one of the simpler states:
- Ohio follows the federal deferral. Ohio's income tax starts from federal adjusted gross income, so a gain deferred under Section 1031 is also deferred for Ohio.
- Ohio taxes gains at its regular rate, now a flat 2.75%. Under House Bill 96, starting in 2026 Ohio taxes nonbusiness income above $26,050 at a single 2.75% rate, and it has no separate capital gains rate (GBQ summary). Many older guides still quote rates near 4%. If your gain counts as Ohio "business income," it falls under Ohio's separate business income deduction rules instead; your CPA can tell you which applies.
- No withholding at closing and no clawback. Ohio does not require tax withholding when a nonresident sells Ohio real estate, and it doesn't track the deferred gain if you exchange into property in another state, unlike states such as California (state-by-state summary).
- No extra state rules for the exchange itself. Ohio doesn't add state-specific exchange requirements on top of the federal rules.
- City income tax is a separate question. Toledo taxes net rental profit at 2.5%, including for owners who live out of state (see our Ohio rental LLC guide). Ask your CPA how your city treats the gain on a sale and on an exchange.
- Closing costs still apply. Lucas County charges a conveyance fee of $4 per $1,000 of the sale price, customarily paid by the seller. Normal selling costs can generally be paid from exchange funds; your QI can confirm which ones. Our breakdown of seller closing costs in Toledo lists what to expect.
What a 1031 Exchange Saves: An Ohio Example
Take an investor who bought a duplex in Columbus in 2016 for $250,000 ($50,000 of it land), claimed about $70,000 of depreciation, and sells in 2026 for $400,000 with $24,000 in selling costs.
| Line | Amount |
|---|---|
| Sale price | $400,000 |
| Selling costs | −$24,000 |
| Adjusted basis ($250,000 purchase − $70,000 depreciation) | −$180,000 |
| Total gain | $196,000 |
| Federal tax on depreciation recapture ($70,000 at up to 25%) | $17,500 |
| Federal capital gains tax ($126,000 at 15%) | $18,900 |
| Net investment income tax (3.8%, if income is above the threshold) | $7,448 |
| Ohio income tax (2.75%) | $5,390 |
| Estimated tax if sold outright | about $49,200 |
| Estimated tax with a full 1031 exchange | $0 now (deferred) |
Illustrative example with assumed 15% federal capital gains bracket; your rates depend on your income. Federal rates under the Internal Revenue Code; Ohio rate under House Bill 96. Confirm your numbers with a CPA.
To defer all of it, the investor needs to buy at least $376,000 of replacement property and reinvest all of the cash. If the duplex had a $120,000 mortgage, about $256,000 of cash sits with the QI. Buying three Toledo rentals at about $130,000 each ($390,000 total) with that cash plus about $134,000 of new financing would meet both tests and turn one property into three income streams. Our Toledo cap rate and ROI guide shows how those homes would need to be priced to cash-flow.
Boot: How a Partial Exchange Gets Taxed
"Boot" is anything you receive in the exchange that isn't like-kind property: cash you keep, or debt that goes away without being replaced. It's taxed up to the amount of your gain.
- Cash boot: In the example above, if the investor keeps $26,000 of the proceeds and reinvests the rest, that $26,000 is taxable this year.
- Mortgage boot: If the old loan was $120,000 and the new loans total only $90,000, the $30,000 difference is boot unless the investor adds $30,000 of cash.
- Buying down in value: If total replacement property is worth less than the net sale price, the shortfall generally shows up as boot.
A partial exchange can still make sense if you need some cash out. Just plan for the tax on the part you keep.
Exchanging Into Toledo?
Austin can line up Toledo replacement properties before your sale closes, so your 45-day list is real, underwritten, and inspected, not a guess.
Plan Your Replacement PropertiesNo pressure. No obligation.
Exchanging Into Toledo Rentals: A Practical Playbook
Toledo is a common landing spot for exchange money: prices are well below the national median, rents are steady, and one sale in a pricier market can buy several Toledo homes. The 45-day clock is short, though, so the work has to start early. Here is what matters on the Toledo side:
- Shop before you sell. Start touring and underwriting Toledo properties while your sale is under contract. Good, well-priced listings move quickly; Redfin rates the market "very competitive."
- Use the identification rules strategically. The three-property rule is simplest. If you are buying several Toledo homes, the 200% rule lets you name more properties as backups, as long as their total value stays under twice your sale price.
- Check lead-safe status before you identify. Most rentals inside Toledo built before 1978 need a lead-safe certificate before a new tenant moves in. A property without one can still be bought, but budget time and money for compliance. See our Toledo lead-safe ordinance guide.
- Get financing approved early. If you need new loans to replace the old debt, get a DSCR or conventional pre-approval before day 45 so appraisals don't push you past day 180. Our guide to financing a rental out of state covers the options.
- Consider tenant-occupied homes. Rentals with tenants already in place start producing income on day one, which helps when you're buying several at once. See buying a tenant-occupied rental in Toledo.
- Vet any turnkey seller. If you're buying from a turnkey company, check its records and rent claims before the property goes on your list: how to vet a Toledo turnkey provider.
- Vest title correctly. Buy in the same name, or the same disregarded single-member LLC, that sold the old property.
- Budget Toledo's carrying costs. Property taxes run about 2% of value per year in the Toledo City School District and are rising for rentals under Ohio's HB 186. See our Lucas County property tax guide.
A 180-Day Timeline That Works
| When | What to do |
|---|---|
| Before listing | Talk to your CPA, choose a QI, and decide on a target market and budget for replacement property. |
| Sale under contract | Sign the exchange agreement, start touring and underwriting replacement properties, and get loan pre-approval. |
| Day 0 | Sale closes; proceeds go to the QI. |
| Days 1–30 | Make offers, schedule inspections, and check lead-safe status and rent rolls. |
| By day 45 | Deliver the signed identification list to your QI. Name backups if the rules allow. |
| Days 45–150 | Finish inspections, appraisals, financing, and title work. |
| By day 180 | Close on the replacement properties (earlier if your tax return due date comes first). |
| Tax time | File IRS Form 8824 with your federal return. |
How to Choose a Qualified Intermediary
The QI holds what is often your largest single pile of cash, so choose carefully:
- Bonding and errors-and-omissions insurance, with proof
- Exchange funds held in segregated or qualified escrow accounts, not commingled
- A written exchange agreement signed before your sale closes
- Experience with multi-property exchanges if you plan to buy several homes
- Membership in the Federation of Exchange Accommodators (FEA) is a good sign
- References from investors or CPAs you trust
One rule surprises people: your own real estate agent, attorney, accountant, or employee who has worked for you in the past two years generally can't serve as your QI. That means Austin can help you sell and buy, but your exchange funds must sit with an independent intermediary.
Reverse Exchanges, Improvement Exchanges, and DSTs
- Reverse exchange: Buy the replacement property before you sell. An exchange accommodation titleholder holds title for up to 180 days under IRS Revenue Procedure 2000-37. It costs more and usually requires cash or special financing.
- Improvement exchange: Use exchange funds to renovate the replacement property before you take title, useful for value-add or BRRRR-style purchases. The work must be done within the 180 days.
- Delaware Statutory Trust (DST): A fractional interest in a large, professionally managed property can count as replacement property under Revenue Ruling 2004-86. It's passive, but you give up control and liquidity.
Mistakes That Kill Ohio Exchanges
- Closing the sale before the exchange agreement is signed
- Taking the proceeds, even briefly, or having them wired to you
- Missing day 45 or day 180 by even one day, or forgetting the tax-return due date
- Identifying properties you haven't inspected, then having all of them fall through
- Buying in a different name than the one that sold
- Underestimating replacement debt and ending up with mortgage boot
- Exchanging into a property you plan to flip or move into right away
FAQ: 1031 Exchanges in Ohio
Does Ohio recognize 1031 exchanges?
Yes. Ohio follows the federal Section 1031 rules and its income tax starts from federal adjusted gross income, so a gain deferred in a valid 1031 exchange is also deferred for Ohio income tax. Ohio does not add state-specific exchange requirements.
How much tax does a 1031 exchange save in Ohio?
It defers federal capital gains tax, up to 25% federal tax on depreciation recapture, the 3.8% net investment income tax for higher earners, and Ohio's flat 2.75% income tax for 2026. On a $196,000 gain, that can add up to roughly $49,000 deferred, depending on your income and depreciation.
What are the 45-day and 180-day rules?
You must identify replacement property in writing within 45 days of selling and close within 180 days of selling, or by your tax return due date including extensions if that comes first. Neither deadline is extended for weekends or holidays.
Can I exchange one property for several Toledo rentals?
Yes. You can identify up to three properties of any value, or more under the 200% rule, and buy several homes as long as their combined value and debt meet the reinvestment requirements. Many investors exchange one higher-priced property into multiple Toledo rentals.
Does Ohio withhold tax when a nonresident sells?
No. Ohio does not require tax withholding at closing when a nonresident sells Ohio real estate, and it does not track or claw back the deferred gain if you exchange into property in another state. You may still owe Ohio tax on any gain you don't defer.
Can my real estate agent be my qualified intermediary?
No. Your agent, attorney, accountant, or employee who has worked for you within the past two years generally can't act as your qualified intermediary. Use an independent exchange company with proper bonding, insurance, and segregated accounts.
What is boot in a 1031 exchange?
Boot is cash or other non-like-kind value you receive, including mortgage debt that isn't replaced. It is taxable up to the amount of your gain, so keeping some cash or buying a cheaper property makes part of the exchange taxable.
Planning an Exchange? Start With the Replacement Property
The tax rules are set by your CPA and QI. Where most exchanges succeed or fail is finding replacement property that works, fast. If you're selling an Ohio rental or exchanging into Toledo from another state, Austin can sell your current property, line up underwritten Toledo replacement properties before your sale closes, and coordinate inspections, lead-safe checks, and financing inside the 180 days. If you're still deciding whether to sell at all, start with our guide to selling an investment property in Toledo.
Book a Free Exchange Planning Call
Disclaimer: Austin Cleghorn is a Realtor, not a CPA, attorney, or qualified intermediary. This article is general information, not tax or legal advice. Exchange rules are strict and fact-specific; work with a CPA and an independent qualified intermediary before you sell.
Sources reviewed for this guide (October 2026)
- 26 U.S. Code §1031: Exchange of real property held for productive use or investment
- 26 CFR §1.1031(k)-1: Treatment of deferred exchanges
- IRS: Instructions for Form 8824, Like-Kind Exchanges
- IRS: Like-kind exchanges, real estate tax tips
- GBQ: Ohio budget bill (HB 96) enacts flat income tax
- 1031 exchange rules by state: conformity, withholding, and clawbacks
- U.S. Treasury: Revenue Ruling 2004-86 (Delaware Statutory Trusts)
- Lucas County: Deeds Brochure (conveyance fee)
- Redfin: Toledo, OH housing market