Once you understand what a 1031 exchange is, the next step is knowing how to do it correctly. The IRS has specific rules and strict timelines that investors must follow in order to defer capital gains taxes successfully. Missing even one deadline or step could invalidate the entire exchange. In this post, we’ll walk you through the most important 1031 exchange rules and deadlines to help you stay compliant and confident throughout the process.
What Is a 1031 Exchange Again?
A quick recap: A 1031 exchange allows you to sell an investment property and reinvest the proceeds into a new, “like-kind” property while deferring capital gains taxes.
But not every transaction qualifies—and that’s where the rules come in.
Core 1031 Exchange Rules Investors Must Follow
1. Properties Must Be “Like-Kind”
This means both the property you’re selling and the one you’re buying must be held for investment or business purposes. It doesn’t matter if one is residential and the other is commercial—what matters is the intent.
✅ You can exchange a rental condo for a strip mall.
❌ You cannot exchange your primary residence for a vacation rental.
2. You Must Use a Qualified Intermediary (QI)
The IRS prohibits you from touching the proceeds of your sale. A qualified intermediary holds the funds in escrow and facilitates the exchange. Without one, your transaction will not qualify.
3. Both Properties Must Be Within the U.S.
International real estate does not qualify for a 1031 exchange. Both the relinquished and replacement properties must be located within the United States.
4. Reinvest All Proceeds (and Debt)
To fully defer taxes, you must reinvest:
- The entire sale price (not just the gain)
- Any debt paid off on the relinquished property (or replace it with equal or greater debt)
Failing to do this can result in “boot”—which means you’ll pay capital gains taxes on the portion not reinvested.
Key Deadlines You Cannot Miss
45-Day Identification Period
You have 45 calendar days from the sale of your original property to identify potential replacement properties.
- You must submit this list in writing to your intermediary.
- You can identify up to three properties—or more if you follow specific IRS value rules.
Pro tip: Start looking for your replacement property before your original sale closes to maximize your search window.
180-Day Exchange Period
You must close on one or more of the identified properties within 180 days of the sale of your original property.
- This includes weekends and holidays.
- The 180-day window is not extended if the 45-day deadline is used up.
Timeline Summary:
Day 0: You sell the relinquished property
Day 45: Deadline to identify replacement property
Day 180: Deadline to close on replacement property
Common Mistakes to Avoid
- Missing deadlines (especially Day 45!)
- Improper documentation
- Using sale proceeds personally
- Choosing a QI too late in the process
- Trying to exchange property held for personal use
Why These Rules Matter
The IRS provides the tax-deferral benefit as an incentive for continued investment—but only when their process is followed precisely. One small error can disqualify the exchange, triggering a full tax event.
We help investors avoid costly missteps by providing guidance, qualified intermediary connections, and hands-on exchange planning. Whether you’re doing your first exchange or your fifteenth, we’re here to help you protect your gains and grow your portfolio.
A successful 1031 exchange starts with understanding the rules and timelines. With the right strategy—and the right partner—you can unlock the full power of tax-deferred growth.
Have questions or ready to start your exchange? Contact us today for a free consultation.
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