The exchange itself

Sell. Never touch the money. Buy the next one. On time.

That is the whole idea: sell an investment property, roll everything into the next one, and the tax bill — the gain and the recaptured depreciation — moves into the new building instead of leaving in April. The rest of this page is the rules that decide whether the IRS agrees, in the order they will come up.

HomeMitigate My TaxesThe 1031, start to finish
First, what qualifies

Investment real estate, for investment real estate.

“Like-kind” is broader than people expect and narrower than people hope.

Broader than you expect

Any U.S. real property held for investment or business swaps for any other: raw land for a duplex, a condo you rent out for a warehouse, one building for three. The properties do not have to resemble each other — “like-kind” means real estate for real estate, not house for house.

Narrower than you hope

Your own home does not qualify — that is Section 121, a different and better rule. Property bought to fix and flip does not qualify — that is inventory, not investment. Shares in a REIT and an interest in a partnership do not qualify. And since the 2018 tax law, only real estate qualifies at all — equipment, vehicles and everything else lost the exchange entirely.

The two clocks

Both start the day you close the sale.

Calendar days — weekends and holidays count, and there are no extensions for being close. Miss either and the exchange is dead and the whole gain is taxable.

Day 45

Identify in writing

By midnight of day 45 you name the replacement properties — in writing, signed, delivered to the intermediary. Unambiguous: an address, not a wish. After day 45 the list is locked; you can only buy off it.

Day 180

Close on the replacement

By day 180 you must own it. Not under contract — closed. The clock does not pause for a slow lender, a bad inspection or a seller who walks.

The year-end trap inside the 180

The real deadline is day 180 or your tax-return due date, whichever comes first. Sell in November or December and the April filing deadline can quietly cut your 180 days short — the fix is simply filing an extension, but only if somebody remembers to.

The identification rules

Three ways to write the day-45 list.

Pick whichever fits, but the list must satisfy one of them or nothing on it counts.

Rule of 3

Three properties

Name up to three, at any price. Buy any of them. This is the one almost everybody uses — name a first choice and two backups, because sellers fall through.

200%

More than three

Name as many as you like, as long as everything on the list adds up to no more than twice what you sold for.

95%

The escape hatch

Broke both rules? The list still works only if you actually buy 95% of its value — nearly everything you named. In practice: do not end up here.

The middleman

The money is never allowed to touch you.

A qualified intermediary holds the sale proceeds from your closing until the purchase. This is not optional paperwork — it is the mechanism that makes it an exchange instead of a sale.

Touch a dollar and that dollar is taxed

If the proceeds land in your account — even for a day, even by a title company’s mistake — the IRS calls it received, and received money is a taxable sale. The intermediary must be in the contract before the sale closes; there is no adding one afterwards.

Who is not allowed to be your intermediary

Anyone who was your agent in the last two years: your attorney, your accountant, your real estate agent, your employee. It has to be an independent professional. And because intermediaries are barely regulated, whose hands the money sits in is a decision worth real diligence — intermediary failures have cost people entire exchanges.

Same taxpayer, both ends

Whoever sold must be whoever buys — same name, same tax entity. Selling personally and buying in a new LLC taxed as a partnership breaks it. Plan the title before listing, not at the second closing.

Buying cheaper

Partial exchanges are allowed. They are just taxed.

Full deferral needs two things: buy equal or greater value, and put all the equity in.

The difference is called boot, and boot is taxed

Take cash off the table, or buy a cheaper building, or carry less debt without replacing it with cash — the difference is taxable, up to the gain. Sometimes that is exactly the right trade: roll most of it, pocket some, pay tax only on the pocket. A choice, not a failure.

What kills exchanges

The disqualifiers, plainly.

Every one of these is a real way real people have turned a deferral into a full tax bill.

Clock

A missed deadline

Day 46 identification or day 181 closing. No grace, no “close enough” — the only extensions ever granted are federal disaster declarations.

Money

Touched proceeds

The funds passed through your hands between closings, or no intermediary was in place before the sale closed.

List

A bad day-45 letter

Not in writing, not signed, not delivered, not specific — or the property you bought was never on it.

Kind

The wrong property

Your own home, a flip, a partnership interest, REIT shares — property the rule was never for.

Family

A related-party shortcut

Swap with a relative or your own entity and both sides must hold for two years — either side selling early detonates the deferral retroactively.

Name

A changed taxpayer

Different owner on the replacement title than on the sale. Same taxpayer, both ends, always.

The advanced routes

Same rules, run in a different order.

All three exist, all three work, and all three need the intermediary lined up before anything closes.

The reverse — buy first, sell second

Found the perfect building before yours has sold? An exchange company can hold title to it for up to 180 days while you sell. It costs more and needs cash or a bridge up front, because your sale money is not there yet — but it beats losing the building.

The improvement — buy it and build with exchange money

Exchange dollars can pay for construction on the replacement — but only work finished within the same 180 days counts toward the value. A renovation, not a ground-up tower.

The vacation home — there is a safe harbor

A second home can qualify if it is genuinely run as a rental: in each of the two years before (and after, for the replacement), rented at market for at least 14 days, with your own use held under 14 days or 10% of the rented days. Inside those lines the IRS has agreed not to argue.

How it ends

Nobody has to pay it back on purpose.

The deferral is not a loan. There are two honest exits.

Roll it again. And again.

There is no limit on how many times a gain rolls forward. Each exchange carries the old basis into the new building and the bill keeps moving in front of you.

The last roll

Held at death, the property passes to your heirs at its market value — the deferred gain and the recapture are simply erased. Estate planners call it “swap till you drop,” and it is the reason patient families treat the 1031 as a one-way door rather than a postponement.

Lived in it too? Read the combination

Where a primary residence is in the mix, Section 121 excludes up to $500,000 of gain outright and the 1031 rolls what the exclusion cannot touch — the depreciation. The order is fixed and the result is startling. How the two stack.

Our part in this

The intermediary holds the money and your accountant signs the return — but the exchange is won or lost on finding the replacement inside 45 days, and that is the part that is actually our job. The inventory, the valuation analysis and the deal tools on this site exist so the day-45 list is written from evidence instead of panic.

One more thing

We are not your accountant and this is not tax advice. Everything here is arithmetic on public records and the numbers you type — run it past the person who signs your return before you act on it.

What comes off this page

Where this leads.

Two ways forward.