Running a 1031 Exchange Against Measure ULA

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% or5.5% transfer tax that is paid at closing and cannot be deferred.

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 Question Is Settled

Through the first half of 2026, sellers had a real reason to watch the election calendar. Not anymore. The statewide measure that would have weakened ULA was withdrawn on June 25, 2026. The measure still on the November ballot, Proposition 43, affects only future initiative taxes and leaves ULA untouched.

That removes the timing question. There is no post-election version of this deal with a smaller transfer tax. A sale that closes in 2026 pays ULA. A sale that closes in 2027 pays ULA.

We are not in the prediction business. We are in the modeling business. There is now only one set of numbers to run, with ULA in them.

The Clocks Still Rule

None of this pauses the exchange deadlines.

The 45-day identification period has no extensions for 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.