1031 Exchange Guide
A 1031 exchange lets you defer capital gains tax on an investment property sale by reinvesting the proceeds into another qualifying property — but the timelines are unforgiving and the rules have no exceptions. Here’s the process, step by step, in plain language.
Decide to Exchange & Engage a Qualified Intermediary
Before you close on the sale- Line up a Qualified Intermediary (QI) before your relinquished property closes — not after. The QI holds your sale proceeds and prepares the required exchange documents.
- You (or your attorney/CPA) and the QI put the exchange agreement in place ahead of closing.
- You can never personally receive or control the sale proceeds at any point — doing so disqualifies the entire exchange, even briefly.
Close on the Relinquished (Sold) Property
Day 0 — both clocks start- Your property sells, and proceeds are wired directly from the closing attorney to the Qualified Intermediary, never to you.
- The day this closing happens is Day 0 — both the 45-day and 180-day clocks start running the same day and run concurrently, not back to back.
- Weekends and holidays do not extend either deadline.
Identify Replacement Property
Within 45 calendar days of closing- Submit a written identification of potential replacement properties to your Qualified Intermediary before midnight on Day 45.
- Identification must follow one of the IRS identification rules (Three-Property, 200%, or 95% Rule — see below).
- You can change your identified list within the 45-day window, but once Day 45 passes, your identified list is locked.
Close on Replacement Property
Within 180 calendar days of closing (or your tax return due date, if earlier)- You must acquire replacement property from your identified list — the QI releases funds directly to the closing of the replacement purchase.
- The 180-day deadline is the earlier of 180 calendar days after your relinquished property closed, or the due date (with extensions) of your tax return for the year of the sale.
- To fully defer all gain, the replacement property should be of equal or greater value, and all net proceeds should be reinvested — anything you keep back (“boot”) is generally taxable.
Report the Exchange to the IRS
With your tax return for the year of the sale- File IRS Form 8824 with your federal tax return for the year the relinquished property sold, detailing the properties, dates, and value calculations.
- Keep your exchange agreement, identification notice, and closing statements for both properties — your CPA will need them to complete the filing correctly.
The Three Identification Rules
You must identify replacement property under one of these three IRS rules within your 45-day window.
Three-Property Rule
Identify up to three potential replacement properties, regardless of their combined value. This is the rule most investors use — simple and flexible.
200% Rule
Identify more than three properties, as long as their combined fair market value doesn’t exceed 200% of what you sold. Useful when casting a wider net.
95% Rule
Identify any number of properties of any value, as long as you actually acquire at least 95% of the total value identified. Rarely used, since falling short disqualifies the exchange.
Common Pitfalls
The mistakes that most often sink an otherwise well-planned exchange.
No QI lined up before closing. Once your sale closes without a Qualified Intermediary in place to receive the funds, the exchange is dead — there’s no fixing it after the fact.
Touching the proceeds, even briefly. If sale proceeds pass through your hands or an account you control at any point, the exchange is disqualified, even if you send the money to the QI yourself a moment later.
Missing the 45-day identification deadline. There is no extension and no exception for a slow market or a deal that fell through — miss Day 45 and the exchange fails.
Buying down in value or pulling out cash (“boot”). To defer all gain, reinvest all net proceeds into equal-or-greater-value replacement property. Any cash or value reduction you keep is generally taxable in the year of the exchange.
Assuming any property qualifies as “like-kind.” Since the 2017 tax law changes, 1031 exchanges apply only to real property held for investment or business use — not personal property, and not your primary residence.
Waiting until tax season to loop in a CPA. The exchange has to be structured correctly before your relinquished property closes. A CPA or 1031 attorney needs to be part of the conversation from the start, not brought in after the fact to report it.
Thinking about your next exchange?
The exchange has to be set up correctly before your current property ever closes — let’s talk timing and strategy early, and loop in a qualified intermediary and your CPA together.
Read the Investor FAQThis guide is for general educational purposes and reflects Section 1031 rules and related federal guidance believed accurate as of 2026; it is not legal or tax advice. A 1031 exchange must be structured correctly, with a qualified intermediary engaged, before your relinquished property closes — confirm your specific eligibility, timeline, and reporting requirements with a qualified CPA or 1031 exchange attorney before you sell. Chuma Hicks-Reese is a real estate professional, not a tax advisor or attorney.