Offset a sale with depreciation from a new purchase
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A 1031 exchange defers the tax on a property sale, but its 45-day and 180-day deadlines are strict. The so-called lazy 1031 is a different approach: sell one property, buy another in the same year, and use cost segregation on the new one.
The first-year depreciation on the new property can offset much of the gain from the sale, without an intermediary or deadlines. Whether it covers enough depends on the numbers and on how the passive rules apply to you.
How it works
Instead of a formal 1031 exchange, buy a new property in the same year you sell one, and use cost segregation on it. The first-year depreciation can offset much of the gain, with none of the 1031 deadlines.
What makes it hold up
- The sale and its gain
- A cost segregation study on the new property
- Both placed in service and sold in the same tax year
Risks
Moderate. Some of the gain (recaptured depreciation and any capital gain) may not be fully offset by passive losses, depending on your situation. It needs to be run with real numbers first.
Questions to ask your CPA
- How much of my gain would the new property’s depreciation cover?
- Is a 1031 exchange better here?
Common questions
How is it different from a 1031 exchange?
A 1031 defers the gain into the new property. The lazy 1031 lets the gain be taxed but offsets it with a new deduction. There's no qualified intermediary, no 45-day list and no 180-day deadline.
Does the timing matter?
Yes. The sale and the new property's purchase and placement in service need to fall in the same tax year.
Will the depreciation cover all of the gain?
Often not. Part of the gain, especially the depreciation you took on the old property, may be taxed differently, and passive limits can restrict how much loss you can use. Run it with real numbers first.
When is a regular 1031 better?
When the gain is large, the new property is ready in time, or the passive rules would limit the new depreciation. A CPA can compare both with your figures.
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Education, not advice. Tax law changes and every situation is different, so confirm the details with your CPA or tax advisor before acting. This page was last checked against tax law as of October 2026, including the 2025 tax law, in October 2026.