A 1031 exchange, named for Section 1031 of the Internal Revenue Code, lets investors defer capital gains taxes when they sell investment or business real estate and reinvest in like-kind real property. The rules are strict, and the deadlines don't bend. Missing one can make the whole gain taxable.
The Two Deadlines
Both clocks start on the day you close the sale of your relinquished property, and they run at the same time.
- Day 45: Identification deadline. You must identify potential replacement properties in writing, as required by your qualified intermediary.
- Day 180: Closing deadline. You must close on the replacement property within 180 days of the sale, or by your tax return due date (including extensions) for that year, whichever comes first.
Weekends and holidays count, and there are no extensions for a slow closing.
Identification Rules
Investors generally identify replacement properties under one of these rules:
- Three-property rule: identify up to three properties of any value.
- 200% rule: identify any number of properties whose combined value doesn't exceed 200% of the property you sold.
- 95% rule: identify more than that, but you must acquire at least 95% of the total value identified.
Other Key Requirements
- Use a qualified intermediary. If you take possession of the sale proceeds, even briefly, the exchange can fail. Line up your intermediary before closing the sale.
- Investment or business property only. Your primary residence doesn't qualify.
- Watch for boot. Cash you keep, or a smaller replacement loan without added cash, can create taxable "boot." To defer fully, investors generally buy equal or greater value and reinvest all net proceeds.
A Practical Timeline
- Before listing: talk to your CPA and choose a qualified intermediary.
- While under contract: start shopping for replacements so you aren't starting cold on Day 1.
- Days 1–45: tour, analyze, and submit your written identification.
- Days 45–180: finance, inspect, and close.
Stay Organized
The 1031 Exchange Planning Interactive Workbook tracks your key dates, identified properties, and transaction details. To evaluate replacements, use the Deal Analyzer and the Rental Portfolio Performance Dashboard.
Written by Marchelle Cook, a Realtor for 26 years and a real estate investor and property manager since 2012. This article is for educational purposes only and is not tax or legal advice. 1031 exchanges have complex requirements; work with a qualified intermediary and a tax professional.
Read our editorial standards and how we explain the numbers.