By Austin Cleghorn, investor-friendly Realtor in Toledo, Ohio. Reviewed October 2026 against IRS Form 8824 instructions, Treasury Regulation §1.1031(k)-1, Ohio's 2026 income tax law (House Bill 96), and Lucas County closing costs. Not tax or legal advice.

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.

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.

1. Hire a qualified intermediary (QI) before you close the sale. You sign an exchange agreement, and your sale contract is assigned to the QI.
2. Close the sale. The proceeds go straight to the QI. If the money touches your bank account, the exchange fails.
3. Identify replacement property within 45 days. Send a signed, written list to the QI.
4. Buy one or more identified properties within 180 days. The QI wires the funds to closing.
5. 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

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.

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 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

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

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.

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