Thinking about trading your San Francisco investment property for higher income potential in the East Bay without triggering capital gains tax right now? You are not alone. Many owners look across the bridge for stronger yields and simpler operations while keeping their money working. In this guide, you will learn how a 1031 exchange works, what timelines matter, and what local rules can impact your numbers when you move from San Francisco into East Bay markets. Let’s dive in.
1031 basics for SF owners
A 1031 exchange lets you defer federal capital gains tax when you swap one investment or business real property for other like-kind real property. After the 2017 tax law, the rule applies only to real property held for investment or business use. Review the IRS guidance to confirm what qualifies and how to report the exchange. You can find the timing, boot, and reporting rules in IRS Publication 544.
What qualifies as like-kind
Both your San Francisco property and the East Bay replacement must be held for investment or business use. Personal-use property does not qualify. The like-kind standard for real estate is broad, but your intent and use matter. You will report details on Form 8824 per the IRS instructions.
The 45- and 180-day clocks
Two hard deadlines run from the day you close the sale of your SF property:
- 45 days to identify your replacement property in writing and deliver that identification to your qualified intermediary.
- 180 days to acquire title to the replacement, or by your tax return due date for that year if earlier.
Miss either deadline and the exchange can fail. The rules and calendar mechanics are explained in IRS Publication 544 and the Form 8824 instructions.
Identification limits you must follow
You can identify using any of the standard IRS methods outlined in the Form 8824 instructions:
- Three-property rule: up to three properties, any value.
- 200 percent rule: any number of properties as long as total value is 200 percent or less of what you sold.
- 95 percent rule: if above the limits, you must buy at least 95 percent of the total identified value.
Avoiding taxable boot
If you receive cash or other non-like-kind value at closing, or if you reduce your mortgage and do not replace that debt, you may recognize taxable gain called boot. To fully defer, most investors target equal or greater purchase price and equal or greater debt. See the boot and liability examples in IRS Publication 544.
Use a qualified intermediary
A qualified intermediary holds your sale proceeds and manages the exchange paperwork so you do not take actual or constructive receipt of funds. Choose an experienced provider with strong escrow controls and cross-bay closing knowledge. Review what a QI does through this qualified intermediary overview.
Why move from SF to the East Bay
San Francisco is a premier market with higher prices and typically lower initial yields. Many East Bay submarkets offer more favorable cap rates, which can improve cash flow and diversification.
Price and yield context
San Francisco’s median home values remain at a premium, which often compresses returns compared with nearby markets. You can see the pricing gap in this San Francisco value snapshot. Practitioners commonly cite higher cap rates in many East Bay submarkets, which is a frequent reason owners use a 1031 to rebalance into higher income.
Rent and tenant rules vary by city
Local rent regulations differ and can affect underwriting, operations, and exit strategy. San Francisco has rent-increase limits, eviction protections, and registration requirements through the Rent Board. East Bay cities like Oakland and Berkeley also have their own programs and timelines. Build local compliance and relocation cost checks into due diligence.
Transfer tax math changes across the bridge
Transaction taxes cut directly into net proceeds. San Francisco uses a progressive city transfer-tax schedule that increases with price tiers. For context on how material this can be to the city’s revenue and large transfers, see this San Francisco transfer tax overview. In Alameda County, the base documentary tax is $0.55 per $500, and several cities add their own per-$1,000 charges. Review the county list of city add-ons before you budget using the Alameda County transfer tax schedule.
Property tax reassessment on replacement
A 1031 exchange defers income tax. It does not carry over your old assessed value under Prop 13. Buying a replacement property generally triggers reassessment to current market value. Plan for a new property-tax base and potential supplemental bills. See assessor guidance on change-in-ownership and reassessment timelines here.
Replacement paths that fit your goals
Your replacement strategy should align with cash flow, management style, and risk tolerance. Here are three common approaches.
One-for-one swap example
- Sell: SF fourplex at $2,500,000 with $300,000 debt and net sale proceeds of about $2,300,000 after closing costs.
- Replace: Target a property at or above the relinquished price and match or increase total debt to avoid boot. Many investors buy at or above $2,500,000 and take on at least $300,000 in financing, then fine-tune with cash so that price and liabilities meet the IRS equalization goal per Publication 544.
Diversify under the three-property rule
If you want broader exposure, you can identify up to three East Bay properties within 45 days and close on any of them by day 180. This approach helps you balance risk and income across different neighborhoods or asset types. Follow the identification mechanics in the Form 8824 instructions.
Go passive with a DST
If you prefer institutional management and simplified operations, a Delaware Statutory Trust can qualify as replacement property when structured correctly. The IRS acknowledged DST treatment in Revenue Ruling 2004-86, which is discussed in the Internal Revenue Bulletin. Learn more in this IRS bulletin reference. DSTs trade control for convenience, so review sponsor terms carefully and match them to your goals.
Financing and timing that work together
Debt replacement matters in a 1031. If you pay down liabilities and do not replace them, you may create mortgage boot. Underwrite target loan amounts early and confirm lender timelines line up with your 45-day identification and 180-day close. The IRS treatment of liabilities and recognized gain is covered in Publication 544.
If you must buy your replacement before selling your SF property, a reverse or improvement exchange can help. These structures use a parked titleholder and require precise documentation and added fees. Read a plain-English overview of the safe-harbor approach in this reverse and improvement exchange guide. Plan early with your QI, lender, and title team.
Step-by-step game plan
- Before listing, interview and engage a qualified intermediary. Confirm wiring controls, identification procedures, and escrow coordination. See the QI overview.
- Pre-underwrite East Bay targets. Model NOI, rent rules, transfer taxes, and new property-tax base. Get lender term sheets so you know funding windows.
- Close your SF sale. Start your 45-day identification and 180-day closing clocks. Deliver identification in writing per the Form 8824 instructions.
- Close on your replacement by day 180. If you need to acquire first, budget for a reverse exchange structure and extra titlework per the reverse exchange guide.
Recommended team: qualified intermediary, a CPA experienced in 1031s, an exchange attorney, a cross-bay broker with investor chops, a local property manager, and a lender familiar with county and city processes.
Underwriting checklist you can use
- Purchase price, closing costs, and city plus county transfer taxes. Use the SF transfer tax overview and Alameda County schedule.
- Current and projected NOI at 12 and 24 months, including realistic vacancy and concessions.
- Rent regulation status, eviction protections, and registration requirements. Start with the SF Rent Board and confirm East Bay city rules.
- Property-tax reassessment and expected supplemental bills. See the assessor overview of change-in-ownership here.
- Financing plan: loan amount, target DSCR, interest rate, and commitment timeline against the 180-day clock.
- Capex plan and whether an improvement or reverse exchange is needed. Read the safe-harbor basics in the reverse and improvement exchange guide.
- Operations plan: management, leasing process, local licensing, insurance, and code compliance.
Common pitfalls to avoid
- Missing the 45- or 180-day deadlines. Put dates on the calendar the day you close your SF sale and confirm lender and escrow capacity early.
- Sloppy identification. Use the IRS-compliant format and deliver it to your QI on time per the Form 8824 instructions.
- Constructive receipt of funds. Never let sale proceeds hit your account. Work only through your QI.
- Underestimating local rules. Rent control, relocation payments, and transfer taxes vary by city. Build a line-by-line net sheet and legal review into diligence.
- Forgetting reassessment. A 1031 defers gains but does not keep your old property-tax base. Budget for a new assessed value using the assessor guidance.
A local partner for a smooth cross-bay move
Moving equity from San Francisco into the East Bay is part strategy, part execution. You need a team that understands rent rules, transfer taxes, neighborhood-level income dynamics, and the 45 and 180 day deadlines. The Lederer Team blends investor-focused underwriting, on-the-ground East Bay knowledge, and a network of QIs, CPAs, lenders, and property managers to keep your exchange on track.
If you are weighing your options, let’s map a step-by-step plan tailored to your goals. Reach out to Katie & Mark Lederer to start a confidential conversation.
FAQs
What is a 1031 exchange for San Francisco investment property?
- It is a federal provision that lets you defer capital gains tax when you sell SF investment real estate and acquire like-kind investment real estate, following strict timing and identification rules in IRS Publication 544.
How long do I have to complete an SF to East Bay 1031 exchange?
- You have 45 days to identify replacement property and 180 days to close on it, measured from your SF sale closing date, per the Form 8824 instructions.
Do I need a qualified intermediary for my exchange?
- Yes. A QI holds proceeds and manages documentation so you avoid constructive receipt; review what to expect in this qualified intermediary overview.
How do San Francisco and East Bay transfer taxes affect my net proceeds?
- San Francisco uses a progressive city transfer-tax schedule, while Alameda County has a base tax plus city add-ons; review both using the SF transfer tax overview and the Alameda County schedule.
Will my property taxes carry over to the East Bay replacement property?
- No. A 1031 defers gains but does not preserve your assessed value. Buying a replacement typically triggers reassessment to market value, as outlined in this assessor guidance.
Can I use a Delaware Statutory Trust as my replacement property?
- Yes, when structured properly. DST interests have been acknowledged as qualifying replacement property under IRS guidance discussed in this Internal Revenue Bulletin reference.
