If you are selling an investment property and want to keep your capital working in Tacoma, a 1031 exchange can be a powerful tool. The challenge is the clock. You have only 45 days to identify replacements and 180 days to close, all while navigating local rules, lending, and property risks. In this guide, you’ll learn which Tacoma assets investors target most, the key federal and Washington rules to follow, and the local due diligence that helps you make a smart pick. Let’s dive in.
Why Tacoma works for exchanges
Tacoma sits at the center of a logistics and education hub. The Port of Tacoma and the Northwest Seaport Alliance drive long‑run demand for industrial and distribution space, which supports investment opportunities across Pierce County. You also benefit from steady regional population trends and university presence that add depth to rental demand in select submarkets.
- The Port’s economic footprint remains a major demand anchor for warehouse and logistics users. Explore the Port’s role in the regional economy to understand the industrial baseline. Port economic impact context
- Neighborhoods across Tacoma offer a range of price points and building vintages, from classic duplexes to mixed‑use assets. Your choice should match your risk profile, timeline, and management preferences.
Tacoma 1031 targets to consider
Multifamily (small to mid‑size)
Multifamily can provide stable cash flow and value‑add upside. You’ll find options near downtown, North End, Hilltop, Proctor, and South Tacoma. Verify rent rolls, unit mix, recent capital projects, and code compliance before you identify a property.
Industrial and warehouse
Pierce County added new industrial product in recent years, and vacancy has moved around with deliveries. Focus on tenant credit, remaining lease term, and rollover schedule. Budget for environmental diligence on infill or legacy sites near port and manufacturing corridors.
Retail and mixed‑use
Neighborhood retail tied to growing residential nodes can perform well. Mixed‑use can make sense where zoning supports added density. Look closely at pedestrian counts, tenant mix, and permitting for signage and occupancy.
Land and development sites
If you want to reposition or build, Tacoma’s updated zoning can unlock density on the right parcel. Confirm what the site allows under the city’s 2025 housing code update. If construction is part of your plan, you may need an improvement or reverse exchange structure to meet timing. Learn more about safe‑harbor structures in IRS guidance summaries on reverse and improvement exchanges. Reverse and improvement exchange basics
Passive alternatives (DSTs and TICs)
If you prefer less hands‑on management or need to close fast, a Delaware Statutory Trust can be a fit. Properly structured DST interests are an accepted 1031 replacement form under IRS guidance, though they are typically illiquid and sponsor‑managed. DST like‑kind treatment overview
Essential 1031 rules you must hit
- Property use: Only real property held for investment or for productive use in a trade or business qualifies. You report the exchange on Form 8824 with your tax return. Review the IRS overview for timing, reporting, boot, and related‑party rules. IRS Form 8824 instructions
- Deadlines: You must identify replacement property in writing within 45 calendar days of transferring the relinquished property and close on the replacement no later than 180 days after transfer or your tax return due date, whichever comes first. Missing these dates usually makes the gain taxable. IRS Form 8824 instructions
- Identification tests: You can use the 3‑property rule, the 200% rule, or the 95% rule. Choose the test that fits your sourcing strategy and document it precisely with your Qualified Intermediary.
- Use a Qualified Intermediary: In a delayed exchange, do not take possession of sale proceeds. A QI must hold the funds until you close on the replacement. IRS Form 8824 instructions
Local rules and taxes to factor in
- Washington Real Estate Excise Tax (REET): REET applies to most property transfers. In 1031s that use an exchange facilitator, Washington allows specific exemptions on the facilitator’s subsequent transfer if procedures are followed. Your QI and escrow will prepare the affidavit and supplemental statement; confirm codes and documentation early. REET exemptions used in exchanges
- Washington capital gains excise tax: Gains from the sale or exchange of real estate are generally exempt from Washington’s capital gains tax. If you sell interests in an entity rather than deeded real estate, the analysis can be different. WA capital gains excise tax guidance
Tacoma zoning and environmental checks
- Zoning and density: Tacoma’s Home In Tacoma update, effective February 1, 2025, expanded allowable housing types and adjusted parking and development standards. This can change feasibility for small multifamily, ADUs, and infill. Verify zoning before you identify a parcel. Home In Tacoma details
- Environmental diligence: Parts of Tacoma include legacy industrial uses and known cleanup areas. Order a Phase I Environmental Site Assessment and check the Department of Ecology’s cleanup site register for known contamination and obligations. Ecology cleanup site lookup
- City research tools: Use Tacoma’s DART map to review zoning, overlays, and permits in one place as you underwrite. Tacoma DART map
Due diligence checklist before you identify
- Title and encumbrances, including easements and covenants. Confirm any REET affidavit or exemption needs.
- Zoning, overlays, and development standards for your intended use.
- Environmental red flags and required covenants or monitoring.
- Building systems and condition: roof, HVAC, electrical, ADA and occupancy.
- Income verification: rent roll, leases, estoppels, and operating statements.
- Market context: tenant credit and lease rollover for commercial; rent comps and vacancy trend for residential.
- Lender readiness: underwrite debt coverage and confirm the lender can work with your QI or EAT if you need a reverse or improvement structure.
Timeline and financing tips
- Start underwriting early. With only 45 days to identify, line up 2 to 3 viable options and confirm lender terms before you close the relinquished sale.
- Consider structure fit. If your ideal replacement will not be ready in time, explore a reverse exchange or an improvement exchange to keep 1031 timing intact. These add cost and complexity but can solve sequencing issues. Reverse and improvement exchange basics
- Keep a backup. A fractional DST interest can serve as a backup ID to help you use all proceeds if a direct purchase slips. DST like‑kind treatment overview
Putting it together
The best Tacoma 1031 target is the one that fits your timeline, yield goals, and risk tolerance. Focus on the non‑negotiables first: the 45/180‑day deadlines, qualified use and reporting, QI control of funds, and Washington REET procedures. Then dig into local feasibility, environmental risk, and lender fit so you can identify with confidence. If you would like a tailored Tacoma short list and a clear plan for your exchange, reach out to Megan Milliken for investor‑minded representation.
FAQs
How does a 1031 exchange work when I sell a Tacoma rental?
- You sell the relinquished investment property, have a Qualified Intermediary hold the proceeds, identify replacement property within 45 days, and close within 180 days while reporting the exchange on IRS Form 8824.
What are the exact 45‑day and 180‑day rules?
- Day 1 starts when you transfer the relinquished property; you have 45 calendar days to identify replacement property in writing and 180 days to complete the purchase or the due date of your tax return, whichever comes first.
Does Washington’s REET apply in a 1031 exchange?
- REET typically applies to property transfers, but certain transfers in a properly documented exchange with an exchange facilitator can qualify for specific exemptions on the facilitator’s conveyance; coordinate early with your QI, escrow, and title.
Will Washington’s capital gains tax affect my exchange?
- Washington’s capital gains excise tax generally exempts gains from real estate sales or exchanges; selling entity interests instead of deeded real estate can change the analysis, so get state‑specific tax advice.
Can I improve or build on a Tacoma property using exchange funds?
- Yes, but you typically need an improvement or reverse exchange structure where an exchange accommodation titleholder parks the property while improvements are made within the 180‑day window.
Do I have to buy the replacement property in Tacoma?
- No, like‑kind property can be anywhere in the U.S. Many investors stay local for operational familiarity, but location is your choice as long as the property use and timing rules are met.
