1031 Exchange Rules and Timeline

A 1031 exchange is a tax-deferred swap of investment real estate that postpones capital gains tax if you follow strict federal timelines and property rules. The exchange must identify replacement property within 45 days of selling the relinquished property, and close the deal within 180 days. Miss either deadline or use ineligible property types, and the deferral is lost.

The 45-Day Identification Clock

The moment you close the sale of your relinquished property, the clock starts. You have 45 calendar days to formally identify which replacement property (or properties) you plan to buy. This isn’t just a mental note—it must be a written notice delivered to your qualified intermediary, signed and dated. You cannot own the replacement property yet; you’re simply declaring your intent. The IRS is strict: one day late disqualifies the entire exchange.

Most investors identify multiple properties as a hedge, since things can fall through. You’re allowed to identify up to three properties without restriction, or more than three if their combined value doesn’t exceed 200% of the relinquished property’s sale price. This safety margin means you can spread your bets and still be compliant, as long as you actually close on at least one of them.

The 180-Day Closing Deadline

Your 180 days run from the same close date as the 45-day window. Within this total time, you must have closed (received title to and taken possession of) at least one identified replacement property. This is a hard stop; the 180th day is the last day the deed can be recorded in your name. Unlike the 45-day rule, a few narrow extensions exist (bankruptcy, federally declared disaster, or certain real estate closings delayed by title issues), but you cannot simply ask for more time.

The 180-day window includes the 45-day identification period, so if you wait until day 44 to identify, you only have 136 days left to close. This is why most exchanges are carefully choreographed: the intermediary and closing attorney coordinate so replacements are ready to go early enough that the 180-day deadline is not a pressure point.

Eligible Property Types

The rule is simpler than it sounds. Real property held for investment or business use qualifies. This includes:

• Apartment buildings and rental homes
• Commercial office, retail, or industrial buildings
• Vacant land held for future development
• Parking lots and storage facilities
• Hotels and mixed-use properties

What does not qualify: primary residences, property held primarily for sale (dealer inventory), stocks or bonds, cryptocurrency, machinery, equipment, or intellectual property. The replacement must be real property. You cannot exchange an apartment building for a stock portfolio or a cryptocurrency position and hope to defer the tax.

After the Tax Cuts and Jobs Act (2017), the definition broadened. For exchanges after December 31, 2017, personal property—trucks, equipment, artwork—no longer qualifies. Only real property does.

Like-Kind and Boot

“Like-kind” is one of the most misunderstood rules. Before 2017, it applied only to real property exchanges (an apartment building could be like-kind to a commercial office building). Now, the rule still applies only to real property, but almost any real property qualifies as like-kind to any other real property. A parking lot is like-kind to an office building; a vacant lot is like-kind to a shopping center. The IRS does not require that the buildings be the same type or quality—just that both are real property.

If you receive cash, debt relief, or a car as part of the deal, that is boot. Boot triggers tax on the gain to the extent of the boot received. If you sell a property with a $200,000 gain and receive $50,000 in cash plus a replacement property valued at $150,000, your $50,000 boot means you pay tax on $50,000 of the $200,000 gain. The remaining $150,000 of gain is deferred.

Common Disqualifying Mistakes

Touching the sale proceeds. The instant you access the cash from the sale, the exchange fails. This is why a qualified intermediary is not optional—a trusted third party holds the funds, and you are barred from taking possession. If you close the sale and your broker cuts you a check, the IRS considers the exchange dead.

Missing the identification deadline. Writing an email to your intermediary on day 46 does not work. The notice must be delivered by end of business on day 45. A courier service, overnight mail, or a fax sent before midnight counts; a fax sent at 12:01 a.m. on day 46 does not.

Identifying property you do not own. You cannot identify a property already owned by someone else, nor can you identify land within a city you don’t have a realistic chance of buying (the IRS may challenge whether the identification was genuine). Vague descriptions like “any property in Denver worth $500,000” fail; you must identify with precision (address, legal description, or parcel number).

Mixing primary residence and investment property. A 1031 exchange cannot defer gains on your home, only on property held for investment. If you’re selling a duplex where you live in one unit and rent the other, the gain attributable to your half is not deferrable.

Buying replacement property before formally closing the sale. You cannot take title to the replacement before the sale of the relinquished property closes. Once the relinquished property sale is closed, you can take title to the replacement anytime within 180 days.

Qualified Intermediary Role

A qualified intermediary is a person or company—often a real estate attorney, CPA, or title company—who has no prior relationship with you and holds the sale proceeds in trust. The intermediary cannot be your spouse, employee, or attorney in prior transactions. Their sole job is to receive the sale proceeds and disburse them to close on the replacement property. By keeping you out of receipt and control of the money, they maintain the tax-deferral status.

The intermediary fee is typically $500 to $2,000, depending on exchange complexity. This cost is worth paying to preserve the deferral.

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