1031 Exchanges Into MDR Condos: What to Watch For

Thinking about rolling the gain from a rental into a Marina del Rey condo with a 1031 exchange? You want steady income and long-term value without tripping over tax rules or HOA surprises. In this guide, you’ll learn the key timelines, rental rules, local taxes, coastal risks, and a simple checklist tailored to MDR. Let’s dive in.

1031 rules you must hit

Timing and structure

A 1031 exchange lets you defer tax when you swap investment real estate for like-kind property, but the timelines are strict. You must identify replacement property within 45 days and close within 180 days, and a Qualified Intermediary must hold your proceeds to avoid constructive receipt. Review the 45 and 180-day deadlines and process in this overview from a 1031 specialist: 1031 exchange timelines and rules.

Reporting and recapture

You report the exchange on IRS Form 8824, which explains basis, deferred gain, and depreciation recapture. Even when you defer gain, certain recapture can still trigger tax now. See the IRS Form 8824 instructions for how calculations work.

California conformity

California generally conforms to federal 1031 rules and has its own reporting for certain cross-jurisdiction exchanges. Review the Franchise Tax Board’s guidance and when Form FTB 3840 may apply: California reporting for like-kind exchanges.

Will a condo qualify as investment

Investment use safe harbor

A condo can be a replacement property only if you hold it for investment or business use. The IRS safe harbor for dwelling units outlines rental days and limits on personal use that help show investment intent. Read the safe harbor details in Revenue Procedure 2008-16.

Rental rules to verify

HOAs set the day-to-day rules that can make or break your plan. Recent California laws curb overly strict rental caps, but HOAs can still prohibit or limit short-term rentals and set minimum lease terms. Always confirm current CC&Rs, rules, and any rental amendments or board resolutions. For context on rental-related HOA regulations, see this summary of California updates: HOA rental rules and recent legislation.

HOA and building health

If the HOA is underfunded or in litigation, your financing options shrink and future resale can suffer. Lenders often look at reserves, delinquency rates, litigation, and special assessments when underwriting a condo loan. Project status can affect FHA/VA and conventional financing, so verify the building’s eligibility and metrics.

Key documents to request early:

• CC&Rs, bylaws, and all rental policies, including minimum lease length and any caps
• Recent meeting minutes, reserve study, operating budget, and insurance certificates
• Litigation disclosures, special assessments, and plans for major repairs
• Owner-occupancy and delinquency rates that affect loanability

For an overview of project standards that commonly influence loan approval, see FHA and VA condo project considerations.

Local MDR market and taxes

Marina del Rey is a small, coastal submarket, so expect limited inventory and price variability by building, view, and unit type. Plan your identification strategy with backups in case a target unit goes under contract.

Transfer tax in MDR

Marina del Rey sits in unincorporated Los Angeles County, where the county documentary transfer tax applies. The current county rate is typically calculated at $0.55 per $500 of value. City-level add-on transfer taxes do not apply in unincorporated MDR. Confirm specifics with your escrow officer and the county. Learn more from the county’s guide: Los Angeles County documentary transfer tax.

Property tax reassessment

Under Proposition 13, a change in ownership generally triggers reassessment. In some exchange structures, such as when an accommodation titleholder is used in a reverse exchange, reassessment can depend on when beneficial ownership transfers. Work with your team to structure the exchange and confirm the county’s view. See the Board of Equalization’s annotations on change-in-ownership issues: California Property Tax Law Guide.

Coastal and seismic risk

MDR’s low elevation and marina-adjacent setting mean higher sensitivity to coastal flooding and sea-level rise. Scientific studies highlight elevated flood exposure along the Los Angeles coast, which can influence insurance costs and lender requirements. For background on regional coastal risk, review this research on Los Angeles area flood vulnerability: Coastal flood and sea-level rise exposure.

What to check for each building and unit:

• FEMA flood zone designation and building elevation
• Master HOA hazard coverage, flood insurance, and earthquake policy availability
• Deductibles and coverage limits that impact your carrying costs

Your MDR condo 1031 checklist

Use this list to keep your exchange on track.

1. Confirm investment intent

• Outline your rental plan and compare it to the IRS dwelling-unit safe harbor. See Revenue Procedure 2008-16.

2. Verify HOA rental rules

• Get CC&Rs, amendments, and written rental policies. Ask if short-term rentals are prohibited and what the minimum lease length is. See California HOA rental updates.

3. Review building finance and loanability

• Check reserve study, delinquencies, litigation, owner-occupancy, and any active assessments. See FHA/VA condo project considerations.

4. Budget insurance and environmental risk

• Confirm master policies and whether you need supplemental flood or earthquake coverage. Inspect FEMA flood zones and local mitigation measures.

5. Plan tax and title details

• Coordinate with escrow on transfer tax, title, and recording. Confirm any reassessment risk tied to your exchange structure. See LA County transfer tax and BOE annotations.

6. Hit the 45/180-day deadlines

• Identify in writing within 45 days and close within 180 days using a Qualified Intermediary. Review 1031 timelines and rules.

7. File correctly in California and federally

• Prepare basis and gain calculations and understand depreciation recapture. Review IRS Form 8824 instructions and California FTB guidance.

Common pitfalls to avoid

• Treating a vacation condo as investment without meeting safe-harbor rental and personal-use limits
• Missing the 45-day identification or 180-day closing deadlines
• Overlooking HOA litigation, reserve shortfalls, or rental caps that limit financing and income
• Ignoring flood or earthquake exposure that increases insurance costs
• Mishandling related-party exchanges or the same-taxpayer requirement

For related-party rules, including the two-year holding requirement, see this overview: Related-party exchange rules.

The bottom line for MDR investors

A Marina del Rey condo can be a smart 1031 replacement if you pair the tax rules with on-the-ground HOA, insurance, and market diligence. Nail the timelines, verify rental rules and building health, and model taxes and insurance before you identify your top choices.

Ready to line up on and off-market MDR options and execute on a 1031 timeline with confidence? Reach out to Scott Price for local guidance and a hands-on plan that matches your investment goals.

FAQs

What is a 1031 exchange timeline for condos?

• You must identify replacement property in 45 days and close in 180 days while a Qualified Intermediary holds the funds, per federal rules.

Do Marina del Rey condos allow short-term rentals?

• Policies vary by HOA, and many restrict rentals under 30 days, so always confirm CC&Rs and amendments before you identify a unit for your exchange.

Which transfer taxes apply in Marina del Rey?

• Unincorporated MDR uses the Los Angeles County documentary transfer tax rate, and city add-on transfer taxes do not apply there.

How does Proposition 13 reassessment affect a 1031 into a condo?

• Reassessment generally occurs on a change in ownership, and specific exchange structures can affect timing, so coordinate with your advisor and the county.

What insurance should I verify for an MDR condo?

• Confirm HOA master hazard coverage, ask about flood and earthquake policies, and check any FEMA flood zone that could raise premiums.