1031 Exchanges, Explained
A 1031 exchange lets an investor sell one investment property and roll the proceeds into another while deferring capital gains tax. The rules are strict, the deadlines are unforgiving, and done right, it defers the entire tax bill.
The two deadlines that rule everything
- 45 days from closing your sale to formally identify replacement property (in writing, to your qualified intermediary).
- 180 days from that same closing to complete the purchase.
Both clocks run concurrently and neither pauses for weekends, holidays, financing hiccups, or a deal falling through. Smart exchangers are shopping replacement property before they list.
The core rules
- Like-kind is broad: any U.S. real property held for investment or business use qualifies — you can exchange a rental house for a retail strip, or land for a warehouse.
- A qualified intermediary must hold the money. Touch the proceeds yourself, even briefly, and the exchange is dead.
- Equal or up: to defer all gain, the replacement must equal or exceed the sale in both price and equity. Take cash out (“boot”) and that portion is taxable.
- Same taxpayer: title on the replacement generally must match title on the property sold.
Common ways exchanges die
Missing the 45-day list. Identifying only one replacement and losing it in inspection. Closing the sale before the intermediary is engaged. Every one of these is avoidable with sequencing — which is a planning conversation, not a closing-week one.
This overview is educational, not tax advice — your CPA and a qualified intermediary should be in the room before you commit to an exchange.
Planning a sale and wondering about an exchange? Start the conversation →