1031 Exchange Timelines and Rules You Must Follow

A 1031 exchange postpones the tax on the gain from selling investment or business real estate when you trade it for other U.S. real estate you will also hold for investment or business use. In a delayed exchange, where you sell first and buy later, a qualified intermediary (QI) holds the sale proceeds, you identify the replacement property in writing within 45 days after the sale closes, and you must receive it within 180 days or by your tax return's due date, including extensions, if that is earlier. Cash you take out is taxed, as is old mortgage debt you do not replace with new debt or added cash. A missed deadline can make the gain taxable, but when multiple replacements are properly identified, receiving one late does not disqualify another received on time; see capital gains tax on investment property.

Which property qualifies

Both the property you sell (the relinquished property) and the property you buy (the replacement property) must be real property held for investment or business use. Any U.S. investment or business real estate is like-kind to any other, so a rental house can be traded for land. These do not qualify:

• Your home or other personal-use property, including a replacement you plan to move into. A vacation home can qualify under Revenue Procedure 2008-16 if you own it for the 24 months before the exchange (after, for a replacement) and in each of those two 12-month periods rent it at a fair rent 14 or more days and use it no more than 14 days or 10% of the rented days, whichever is more.
• Property held primarily for sale, such as a house you buy to renovate and resell.
• Personal property, such as appliances and furniture sold with a rental.
• Partnership interests, including an interest in an LLC taxed as a partnership, though the LLC can exchange its own real estate. Crowdfunding and 1031 exchanges covers fractional structures that may qualify.
• Real property outside the United States.

The qualified intermediary holds the money

If you receive or can draw on the full sale proceeds before you get the replacement, the deal is a taxable sale. Under a written exchange agreement signed before closing, the QI takes your place in the sale contract, with written notice to the other parties, holds the money, and buys the replacement for you.

• Who cannot be your QI (a disqualified person): you, a close relative, a company you own more than 10% of, or anyone who acted as your employee, attorney, accountant, investment banker or broker, or real estate agent or broker in the 2 years before the sale. A title or escrow company that provided only routine title or escrow services can serve.
• Access to the money: you cannot receive, pledge, or borrow against the funds until the exchange period ends, except after day 45 if you identified nothing, or once you receive all the property due under the agreement.
• If the QI fails: a QI's bankruptcy or missed deadline can make the exchange fail, so ask whether your money will sit in a qualified escrow account or qualified trust.

The 45-day and 180-day deadlines

Both periods start the day the sale closes, run concurrently, and count calendar days to midnight.

When your return is due first. For a calendar-year individual, any sale that closes on or after October 18, 2026 has a 180th day after April 15, 2027, when the 2026 return is due, so its exchange period ends April 15 unless you extend the return with Form 4868 by then.

Disaster postponements. When the IRS announces relief for a federally declared disaster, deadlines falling after the disaster move back 120 days or to the end of the relief period, whichever is later, but not past your return's extended due date or one year. You need a sale that closed on or before the disaster date and either coverage under the announcement or a deal the disaster disrupts, such as a QI or lender in the disaster area.

How to identify replacement property

Sign a written identification that describes each property by street address, legal description, or a distinguishable name, and deliver it by midnight on day 45 to your QI or another party to the exchange who is not you or a disqualified person. You can revoke it in writing before day 45 ends, and property you acquire within the 45 days counts as identified. To name more than one property, use either rule:

• Three-property rule: up to three properties of any value.
• 200% rule: any number of properties whose total value at the end of day 45 is no more than twice the value of what you sold. After a $600,000 sale, four properties totaling $1,150,000 pass; five totaling $1,300,000 do not.

If you exceed both rules, only property acquired within the 45 days counts, unless you acquire identified property worth at least 95% of the total value you identified.

How cash and debt create taxable boot

Gain is taxed up to the boot you receive, meaning cash or anything else that is not like-kind real property:

• Cash paid to you at closing or left with the QI after the purchase.
• Net debt relief. A mortgage paid off on the property you sell counts as cash received, unless you offset it with a mortgage on the replacement or your own added cash.
• Personal property you receive, such as furniture that comes with the replacement building.

Borrowing more on the replacement does not offset cash you receive. To defer all of the gain, buy property costing at least your net sale price, put every dollar the QI holds into it, and take on at least as much debt as you paid off or add cash to cover the difference. If you sell for $700,000, pay $40,000 in commissions and closing costs, and buy a $640,000 replacement, $20,000 is taxable boot, as leftover cash or as debt relief.

Commissions, title charges, and other costs of selling and buying are exchange expenses, which reduce boot. Loan costs such as points and lender fees, rent prorations, security deposits, and property taxes on a closing statement are not, so review each settlement statement with your QI before closing.

Reverse and improvement exchanges

Reverse exchange. If you must buy first, an exchange accommodation titleholder (EAT) can hold title under an IRS safe harbor, a set of conditions the IRS will not challenge, in Revenue Procedure 2000-37. Sign the agreement within 5 business days after the EAT takes title, identify the property you will sell within 45 days, and complete the exchange within 180 days.

Improvement exchange. Exchange funds can pay for building or renovating the replacement while the EAT holds title. By day 45, identify the land and the planned work in as much detail as you can. Only work finished before you take title, within the 180 days, counts as like-kind property; funds spent on later work are taxed as boot. The safe harbor does not cover a replacement you owned at any time in the 180 days before the EAT took title, so you cannot use it to build on land you already own.

Exchanges with relatives and entities you control

You can exchange with a related person, such as a spouse, parent, grandparent, child, grandchild, or sibling, or a corporation or partnership you own more than 50% of. If either of you disposes of the property received within 2 years, the deferred gain is taxed in the year of that later disposition, with exceptions such as a death or a sale you show the IRS was not tax-motivated. Buying your replacement from a related person through a QI generally fails if the related person receives cash for it. After a related-party exchange, file Form 8824 for that year and each of the next 2 years.

Reporting the exchange and what happens later

Report the exchange on Form 8824 with your return for the year you transferred the relinquished property, even if no gain is taxable. Keep the signed identification and closing statements, which show the dates the form asks for. Its Part III figures any gain taxed because of boot and the basis of the new property, the figure your future depreciation and gain are measured from.

That basis starts with the old property's adjusted basis, plus cash you add, new debt, qualifying exchange expenses, and gain you recognized, minus cash you receive and debt paid off. Allocate basis first to furniture or other non-like-kind property received, up to its fair market value; the remainder is the replacement real estate's basis. If a rental with a $300,000 adjusted basis and no mortgage sells for $700,000 and you buy an $800,000 replacement with the $700,000 plus a $100,000 loan, the new basis is $400,000. The $400,000 of deferred gain, including the part from depreciation you claimed, is taxed when you sell the replacement in a taxable sale; depreciation recapture explains that part. If you still own it at your death, your heirs' basis is generally its fair market value then, which removes the deferred gain; see estate planning for rental property owners.

An Opportunity Zone fund lets you take your original investment out in cash and reinvest only the gain, with a 5-year deferral for money invested on or after January 1, 2027. Tax planning strategies for rental property income compares other ways to reduce tax on a sale.