Two Clocks, One Deal: Running a 1031 Exchange Against Measure ULA

by Stephen Morris CPA, MBT, CCIM

A 1031 exchange runs on two unforgiving clocks: 45 days to identify replacement property and 180 days to close.

Sell in the City of Los Angeles above the ULA threshold, and a third factor enters the equation: a 4% or 5.5% transfer tax that is paid at closing, cannot be deferred, and may be affected by a November ballot measure.

Here is how the pieces interact.

ULA Does Not Defer—and It Shrinks Your Exchange

The exchange defers your income tax. ULA is paid at closing regardless, which means it comes out of the proceeds you had planned to redeploy.

On a $6 million sale, that is roughly $240,000 less buying power on the replacement side.

The exchange math still works; it just works with a smaller number. Your debt and equity targets for the replacement property need to reflect that from day one—not after the 45-day identification list has already been locked.

The Threshold Is a Cliff, Not a Slope

Because ULA applies to the entire sale price once you cross the threshold, the difference between a $5.35 million sale and a $5.45 million sale is not simply $100,000. It can also mean a six-figure tax bill.

Near the threshold, structure and negotiation matter.

What does not work is gamesmanship. Artificially splitting the consideration or mislabeling personal property to fall below the threshold is the kind of strategy that can be unwound and penalized.

Price honestly. Plan honestly.

The November Variable

The statewide measure on the November 3, 2026 ballot would substantially weaken ULA if it passes.

For anyone considering a sale in late 2026, that creates a genuine timing question. A closing before the election will be subject to ULA under current law. What happens afterward will depend on the result and on effective dates that have not yet been settled.

We are not in the prediction business. We are in the modeling business.

Run the deal both ways, decide what you would do under each outcome, and do not allow an election you cannot control to make the decision by default.

The Clocks Still Rule

None of this pauses the exchange deadlines.

The 45-day identification period has no extensions for ballot measures, negotiations or wishful thinking.

If the plan is to complete an exchange, the replacement-property pipeline needs to exist before the sale closes. The ULA-adjusted proceeds figure also needs to be the number used by both your broker and your qualified intermediary.

Can My Exchange Intermediary Hold Back the ULA Money?

ULA is paid at closing, like other transfer taxes. Your exchange planning therefore needs to treat the after-ULA amount as the actual proceeds available for reinvestment.