If you’re an investor in or around Hattiesburg, Mississippi, considering selling an investment property and buying another one, then using a 1031 exchange can be a powerful tool. This article walks through: what a 1031 exchange is; why it matters in Mississippi; how to apply it for a property in Hattiesburg; key rules and timelines; and special local-market considerations.
What is a 1031 Exchange and Why It’s Useful
A 1031 exchange refers to the tax-deferred exchange under Section 1031 of the U.S. Internal Revenue Code. In essence, when you sell investment real estate and reinvest the proceeds into “like-kind” investment real estate, you can defer payment of capital gains tax (and depreciation recapture) that would otherwise be due upon the sale
Key Benefits
- Tax deferral: By rolling proceeds into a new property, you’re able to preserve more capital for reinvestment rather than paying tax now
- Portfolio growth: The strategy enables you to move from one investment to another—perhaps upgrading in value, shifting asset type (e.g., from single-family rental to small commercial) or relocating geographically.
- Flexibility: Provided you follow the rules, there is no limit on the number of times you can do a 1031 exchange.
Why It Works in Mississippi — and Specifically Hattiesburg
From a state-specific standpoint:
- Mississippi allows 1031 exchanges just like all other U.S. states, but the properties still must meet the federal requirements (investment/business use, like-kind, timelines).
- For example, a recent source states: in Mississippi, real estate held for business or investment purposes qualifies, and the like-kind definition is broad and applies across the U.S. real property class.
For Hattiesburg specifically:
- Hattiesburg is a growing market in south Mississippi with a university, regional healthcare, some rental demand and investment property opportunities. Leveraging a 1031 exchange here means you can pivot from one asset you own (perhaps older, smaller, or highmaintenance) into something stronger (maybe newer, lower-maintenance, better cash flow) while deferring taxes.
- Additionally, by doing the exchange locally (selling in Hattiesburg and buying another Hattiesburg or nearby property) or regionally, you benefit from tax-deferral but also keep your investment exposure to a region you know.
Step-by-Step: Selling and Buying in Hattiesburg Using a 1031 Exchange
Here’s a practical roadmap tailored for a Hattiesburg‐area investor.
1. Decide to sell your current investment property
- You’re holding an investment property (rental, commercial, land held for lease or appreciation). The key is: it mustbe held for investment or business purpose—not your personal residence. lawrjm.com+1
- Example: You own a 4-unit rental near the university in Hattiesburg and you decide it’s time to upgrade to a 12-unit or small apartment complex somewhere else in the region.
2. Engage a Qualified Intermediary (QI) before closing
- One of the most important steps: you must engage a QI to hold the proceeds from the sale so you don’t “constructively receive” the cash yourself. If you handle the money, the exchange fails.
- Make sure your sale contract for the property in Hattiesburg includes language signalling that the transaction is intended as part of a 1031 exchange.
3. Close the sale of your relinquished property
- After your old property in Hattiesburg sells, the proceeds are sent directly to the QI. Do not take receipt of the checks yourself.
- At this point you’ve got your “down-leg” done.
4. Identify replacement property(ies) within 45 days
- From the date you closed your sale, you have 45 calendar days to identify in writing to your QI the property (or properties) you will acquire as the replacement.
- You can specify up to three properties under the “three‐property rule” (or more under certain value tests) as backup.
- In the Hattiesburg area you might identify: a small apartment complex, a commercial mixed‐use building downtown, or a raw land parcel for future development.
5. Close on replacement property within 180 days
- You must complete acquisition of the replacement property (or properties) within 180 days of the sale of the relinquished property.
- The replacement property must be “like-kind” — meaning it is real property held for investment/business and located in the U.S. (so a Hattiesburg property or anywhere in the U.S. qualifies).
- For example: you buy a 10-unit rental in Hattiesburg (or nearby Meridian/Laurel) that meets your investment goals.
6. Hold and manage the replacement property
- After closing, you should hold the new property as an investment—not flip it immediately or convert to personal use if you want to maximize the deferral benefit. Rapid flips or personal use conversions can draw scrutiny.
- Over time you continue to manage it or hold it as passive investment. Eventually when you sell that property without further exchange, you’ll pay the tax (unless you do another 1031).