Can You Use a 1031 Exchange to Buy Land at Auction?

A real estate auction is the best option for buying and selling lands, especially certain types. For some, it points to the question, though. Can you use the 1031 exchange to buy land at auction? Read on to learn about the section 1031 exchange.

Editor’s Note: This is not financial, investment, legal, or real estate advice. Consult with a financial planner, investment specialist, real estate lawyer, and real estate professional before buying or selling land at auction.

How 1031 Exchanges Work

It’s important for those buying and selling real estate to know how the 1031 exchange works. There are 1031 exchange rules to know. But first, what is it?

In simplest terms, it’s a way in which sellers of land can defer the capital gains and build wealth faster. It allows real estate holders to quickly transition from one piece of like-kind real estate to another while putting the capital gains taxes on hold.

“Also known as a tax-deferred exchange, when done properly, it allows the seller of real estate to defer their capital gains until sometime in the future,” said Dave Skinner, a Whitetail Properties Land Specialist in Kentucky.

According to Whitetail Properties, there are multiple types of 1031 exchanges. These include delayed exchanges, reverse exchanges, and build-to-suit exchanges.

Delayed Exchange: This is what most people use, and is when a property is sold, and the replacement property is closed within 180 days.

Reverse Exchange: This is used when you sell the old property after closing on the replacement property.

Build-to-Suit Exchange: This is where an investor uses the deferred tax dollars from the sale of the old property to make renovations to the new property.

Overall, proper use of the 1031 exchange allows you to change from one property investment to another without realizing capital gains. This makes it possible for investments to grow in a tax-deferred manner, which aids in building wealth faster. Deferred taxes are due upon final sale for cash (rather than being held in escrow for the next property swap). In the end, it results in a single long-term capital gains tax payment, instead of one at the time of each property swap.

Can the 1031 Exchange be Used to Buy Land at Auction?

Considering the 1031 exchange rules, it begs the question, can you use the 1031 exchange to buy land at auction?

Robert Brooks, a Whitetail Properties Land Specialist in Colorado points to one particular client who recently used the 1031 exchange. He completed all of his due diligence leading up to the auction. Then, on auction day, he was in a good place, knew how much to spend, and secured the right property.

“I have a client that's doing just that right now,” Brooks said. “I had a recent auction that's now closing. It was a multi-million dollar deal we took to auction. Both the buyer and the seller are facilitating 1031 exchanges right now.”

Can the 1031 Exchange be Used to Sell Land at Auction?

Some might wonder, can you sell land at auction and still use the 1031 exchange? The answer is a resounding “yes.” If you want to buy another property, and plan to implement the 1031 exchange, you can implement the auction strategy to get your property sold in time.

“One of my sellers is doing that right now,” Brooks said. “He's selling the place and wasn't really sure what to do with the proceeds. Obviously, you can 1031 exchange to any like-kind you like — any like-kind real estate. So, he decided he will implement that.”

Is the 1031 Exchange Right for You?

Buyers and sellers of land alike must determine if the 1031 exchange is right for them. For some, it is. For others, it isn’t.

“The big deal is obviously timing, especially for the buyer,” Brooks said. “The auction must happen at the right time for that to work out. With the 45 days to identify your target property, and then the 180 days to secure one, it’s important to get lucky with your timing.”

For some buyers, that works out just fine. With others, you know from the very beginning it won’t. Still, many are right up against these timelines.

Work Closely with and Prepare with Lenders and Other Professionals

Because the 1031 exchange is on such a short timeline, it’s crucial to be completely prepared before embarking on the selling and buying processes. To ensure you’re ready, and all factors are considered, follow a pre-auction checklist.

“Most of the time, with auctions it's going to move fast — a lot faster than standard land transactions,” Brooks said. “It’s done in 30 days with no contingencies and a quick close. So, definitely build relationships so that you know what you can afford and you can facilitate the transaction in the standard 30 days.”

Brooks recommends buyers to get with their lender long before the auction. You want to be really tight with your lender. Working with FSA lenders and farm service agencies takes time. In general, they move quite slow.

“By slow, I mean really slow,” Brooks said. “Oftentimes, these guys build that relationship early on — way ahead of the auction. Typically, we have about 45 days from the time that we market the auction until it actually takes place.

“Buyers build those relationships with different bankers to figure out what they can afford,” Brooks continued. “How much can you actually take to the auction before you find yourself in a bind. Plus, you go into the auction with the pre-approval. You must be willing and able to put down 10% of the sale price.”

Work with Ranch & Farm Auctions

Should you buy/sell land at auction? Furthermore, does it make sense to implement the 1031 exchange?

“Not every property is suitable for an auction, and not every property is right for a traditional listing,” Skinner said. “I really think it's important to keep an open mind about auctions, because a lot of times, these are best for bringing the highest and best offers on the property.”

According to Skinner, having that predetermined sale date is beneficial as well, though. When you set an auction date, you know that 30 days later, the seller is going to have the check for their land in hand.

“Sometimes, that's very important,” Skinner said. “Other times, that's less important. Of course, some properties just don't do as well at auction.”

Skinner says to weigh all the relevant factors. Observe the pros and cons.

Do you need that money ASAP? If so, the auction is the way to go. Because you can never guarantee a timeline with a traditional real estate listing. Even if under contract, that might fall through. With auctions, there’s a much greater degree of certainty and finality.

Property type is another factor to consider. For example, agricultural lands tend to do much better at auction than with a traditional listing.

“There is no better way to sell row crop land than getting all the neighborhood farmers together and competitively bidding against it,” Skinner said. “That's when auction sale records happen.”

Of course, properties with development potential also do very well at auction. So do properties with multiple residential lots. Even properties with multiple use types and transitioning tracts, yet lean more toward tillable and development ground, can do well if divided properly.

“When you're looking at more transitioning use types — a lot of those types do better with a traditional real estate listing,” Skinner said. “Call your land specialist. Sit down, have an open mind, and listen to his or her expertise.

“Be sure you're open, honest, and upfront with that guy as well,” Skinner continued. “For example, let him know that you’re looking at foreclosure if this thing doesn't sell within the next 60 days. Tell them you need it sold to meet 1031 exchange deadlines. We can make that happen to avoid that foreclosure, meet that deadline, or achieve whatever you're looking to do. There are a lot of different reasons why an auction might be the preferred option over traditional real estate listings.”

Perhaps you have the property on the market as a traditional listing, but it isn’t selling fast enough. In this case, people who plan to implement the 1031 exchange, and who must jump on another property that’s for sale, might implement the auction method as a back-up plan for currently listed properties.

“If they are really tied into that replacement property, and they're on a predetermined timeline, an auction might be the best way to go,” Skinner said. “However, if it's an undesirable type of property, or it’s primarily recreational land, you likely aren’t going to have a lot of people there to be competitive on it. Even so, it might be the best way to get your money in time.”

For landowners looking to sell at auction, contact Ranch & Farm Auctions. We can answer questions and help with your auctioneering needs. For buyers hoping to purchase land, check out some of the upcoming Ranch & Farm Auctions near you.

Published on 2025-12-30