Thinking about selling a Miami Beach investment condo or rental and worried about taxes taking a big bite out of your gain? You are not alone. Many local owners have seen strong appreciation and want a smarter way to reposition equity without losing momentum to federal taxes. In this guide, you will learn how a 1031 exchange works, the strict rules you must follow, and the Miami Beach details that can make or break your plan. Let’s dive in.
What a 1031 exchange does
A 1031 exchange lets you sell investment or business real estate and reinvest the proceeds into other like-kind real property while deferring federal capital gains taxes. Since 2018, exchanges apply to real property only, not personal property. The IRS explains the like-kind rules, deadlines, and reporting on Form 8824 in the official instructions. You can review those specifics in the IRS Instructions for Form 8824.
Two core points matter most:
- You are deferring tax, not eliminating it. Any cash you take out at closing is taxable to the extent of your gain.
- Real estate must be held for investment or business use, not as a primary residence.
For a clear overview of what deferral means over time and how it may fit into long-term planning, see this primer on 1031 exchanges and basis step-up.
Why it helps Miami Beach sellers
- Keep more equity working. By deferring federal tax, you can apply more of your proceeds to a new property, which can help you trade up or increase income potential.
- Florida has no personal income tax. There is no state capital gains tax layered on top of federal tax for individuals, so the federal deferral can be especially valuable here.
- Strong local appreciation. Miami-Dade has seen multi-year gains and high demand, which means many owners have sizable unrealized gains to manage. Recent MIAMI REALTORS market updates highlight the region’s strong position.
- Reposition your portfolio. You can shift from a hands-on condo to a more passive structure or a different asset class without triggering immediate federal tax. Some investors use Delaware Statutory Trusts (DSTs) to pursue passive ownership.
- Estate planning potential. If you hold exchanged property until death, heirs may receive a step-up in basis that can eliminate deferred gains for them under current law.
Who qualifies in Miami Beach
To qualify, your property must be held for investment or business use. Primary residences do not qualify. If you are exchanging a second home or vacation condo, the IRS provides a safe harbor with clear rental and use tests in Revenue Procedure 2008-16.
If your investment property has been used as a short-term rental, it must be legally operated under Miami Beach rules. The city has strict registration, zoning, and documentation requirements for vacation and short-term rentals. Make sure your unit and building are compliant and that you can document lawful rental activity.
The deadlines you cannot miss
The timeline is strict and based on calendar days:
- Identify replacement properties in writing by day 45 after your sale closes.
- Close on your replacement property by day 180 after your sale closes, or by your tax return due date if earlier.
Identification methods include the 3-property rule, the 200 percent rule, and the 95 percent rule. Follow them exactly.
Choose a Qualified Intermediary
To avoid receiving or controlling proceeds yourself, hire a Qualified Intermediary before you close the sale. The QI holds funds and prepares exchange documents. The IRS safe harbor is designed to prevent constructive receipt of funds.
Close and report correctly
At sale, funds should go straight to your QI. At purchase, your QI sends funds to the seller. You will report the exchange on IRS Form 8824 as part of your tax return.
Closing costs and Miami-Dade transfer taxes
Budget for standard closing costs and Florida transfer taxes. Florida charges a documentary stamp tax on deeds. Miami-Dade’s rate is generally 60 cents per $100 of consideration plus a county surtax of 45 cents per $100 on most non–single-family transfers. Mortgages can also trigger documentary and intangible taxes. Review current details with the Florida Department of Revenue.
Typical QI fees for a standard delayed exchange often range from about $600 to $1,500, with reverse or improvement exchanges costing more. Ask your QI for written fee disclosures.
Common pitfalls to avoid
- Missing the 45- or 180-day deadlines. These are hard deadlines, and missing them usually kills the exchange.
- Touching the money. If you receive or control proceeds outside the QI safe harbor, the exchange can become taxable.
- Creating taxable “boot.” If you take cash out or reduce debt without replacing it with new cash or financing, some gain may be recognized.
- Overlooking depreciation recapture. 1031 defers, but does not erase, potential unrecaptured Section 1250 gain that could be taxed when recognized later.
- Related-party traps. Special rules can trigger tax if a related party disposes of property within a restricted period.
- STR or condo rule conflicts. If your investment use depends on short-term rentals, make sure the building and city allow it and that your documentation is solid.
- Poor QI safeguards. Choose a QI with strong custody, bonding, and transparent accounting.
Popular replacement options
- Local Florida properties. Reinvest in Miami Beach or elsewhere in Florida, keeping an eye on insurance costs and HOA assessments.
- Out-of-market assets. Diversify into other cities or property types to adjust risk and income.
- DST or TIC interests. The IRS has recognized structures like DSTs as qualifying replacement property under specific rules. These can offer passive ownership but come with limits and fees, so review offering documents carefully.
Step-by-step checklist
- Confirm investment use. If it was a second home, review the IRS safe harbor and your rental history.
- Talk to your CPA or tax attorney. Confirm structure and timing before listing.
- Hire a Qualified Intermediary. Do this before you sign closing papers on the sale.
- Prepare your replacement plan. Pre-screen properties so you can identify by day 45.
- Close your sale with QI involvement. Start the clock and document the exchange properly.
- Identify by day 45 and close by day 180. Keep your timeline front and center.
- File Form 8824 with your tax return. Keep records of identification notices and QI statements.
Final thoughts and next steps
A well-planned 1031 exchange can help you keep more of your Miami Beach equity working while you upgrade, diversify, or simplify your portfolio. The keys are early planning, strict adherence to the IRS rules, and choosing partners who understand both the tax rules and the Miami Beach market. If you are considering a sale, let us help you value your property, craft a listing strategy, and source qualified replacement options across South Florida and beyond. Connect with the Alex Miranda Group at ONE | Sotheby's International Realty® for a private consultation.
FAQs
Can I 1031 my Miami Beach primary home?
- No. Primary residences do not qualify. If you convert a second home to investment use and meet the IRS safe harbor for rentals and personal use, you may qualify.
Does Florida tax my capital gains if I do not exchange?
- Florida does not impose a personal state income tax, so there is no state-level capital gains tax for individuals. Federal taxes still apply.
What are the 45- and 180-day rules in a 1031 exchange?
- You must identify replacement properties in writing within 45 days after your sale and close on the replacement within 180 days, using a Qualified Intermediary to hold funds.
Are DSTs allowed as replacement property in a 1031 exchange?
- Yes. Under IRS guidance, certain Delaware Statutory Trust interests can qualify as like-kind property, but they have constraints, fees, and limited control.
What closing taxes should I expect in Miami-Dade?
- Deed transfers are generally subject to a 60-cent per $100 documentary stamp tax plus a 45-cent per $100 county surtax on most non–single-family transfers, with separate taxes possible on mortgages.
