Where 1031 replacement property is easy to find right now (plus an oil and gas angle)

Question

The hardest part of a 1031 exchange usually isn't the paperwork. That's your QI's job (the qualified intermediary, the company that holds your sale money) and your CPA's. The hard part is finding replacement property you actually want before your deadlines hit.

In Louisville, small multifamily just got a lot easier to find. Jefferson County, 2-4 unit, August 2026, from our MLS:

• 167 active listings, up from 128 a year ago and 88 in February
• About 10 months of supply at the current sales pace, up from about 6.5 a year ago
• Around 80 days on market on average
• Closing at about 92.8% of original list price

167 active listings, up from 128 a year ago and 88 in February

About 10 months of supply at the current sales pace, up from about 6.5 a year ago

Around 80 days on market on average

Closing at about 92.8% of original list price

Single-family is tighter: about 2.7 months of supply, 28 days on market, 97% of list.

What that means for an exchange buyer: you can line up backups instead of praying your first pick closes. And a seller who's been sitting 60 to 90 days is usually more motivated than you are, even with your clock running. At these prices, several duplexes or fourplexes instead of one bigger building is on the table too. Ask your QI whether that fits your exchange.

Money goes farther here. Kentucky's income tax is down to a flat 3.5%, entry prices are a fraction of Nashville's, and the job base is logistics, manufacturing and healthcare.

The honest downsides: a lot of the 2-4 stock is older, so out-of-state buyers get hurt by condition more than price. Underwrite on real rents and today's rates, not the listing's projections. And work with someone local who knows what they're talking about and will insulate you from risk.

The other thing I've been digging into: oil and gas.

It's a cool thing, and not a lot of people talk about it. Oil and gas mineral and royalty interests can count as like-kind real property for a 1031. Separately, direct drilling investments come with their own tax benefits. The way it's been explained to me, on something like a $50,000 working-interest investment, a big chunk of it, sometimes most of it, can be written off in year one through what's called intangible drilling costs. Then you collect mailbox money: checks from the profits on what's produced.

It's not for everybody. Wells come up dry, oil prices swing, and the tax treatment depends on exactly how you own it. Run it by your CPA and QI before you touch it. Not tax advice. But if you're sitting on gains and tired of toilets, it's worth a conversation.

Anyone here done a 1031 into mineral rights, or split proceeds across several smaller properties? How'd it go?

Diana Khan · Answer

@Rob Bergeron, I agree that finding the replacement property can be the harder part of a 1031, especially when you are working against a deadline. Having a few possible properties in mind can give an investor more flexibility, but I would still want to look closely at the property, title, ownership, and how the new property will be held before making that decision.

I’ve had clients start with one replacement property in mind and then change direction as they got further into the deal. In those situations, we’ve had to look at the ownership structure and the documents carefully so the new investment fits with their bigger plans. That is one reason I like getting the legal side involved early rather than waiting until the exchange is already moving.

I really like this topic, @Rob Bergeron, especially the point about having backup options instead of waiting until the last minute. It connects closely with the real estate work I do with investors.

Kasing Ng · Answer

Hi Rob, I can't speak to having done a 1031 into mineral rights myself, but I can flag the tax side, since that's the part that usually gets glossed over.

The year-one deduction on oil and gas gets sold hard, and the back end almost never comes up. Those intangible drilling costs you write off up front are real, but Section 1254 pulls a lot of it back as ordinary income when you sell. It's basically the oil and gas version of depreciation recapture. So it's more "pay less now, pay some later" than a permanent savings, and how long you hold changes the whole picture.

One other thing that trips people up: a working interest and a royalty interest get taxed pretty differently even though they're both "oil and gas." A working interest is one of the rare things the passive loss rules leave alone, so those early losses can offset other income. A royalty check is just passive. Same pitch, different outcome, so it's worth knowing which one you're buying.

On splitting proceeds into a few smaller properties instead of one building, that part's a normal 1031. Just watch the 45-day identification window and the rules on how many you can name. Lining up backups is exactly what those rules are for.

None of this is advice on a specific deal, just the part that usually gets left out.

Where 1031 replacement property is easy to find right now (plus an oil and gas angle)

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