The Rules
1031 Exchange Rules & Timelines
The 45- and 180-day clocks, like-kind property, boot, and the qualified intermediary: the mechanics that make or break an exchange.
The 45-day and 180-day clocks
Both clocks start the day you close the sale of your relinquished property.
- Day 45: you must identify replacement property in writing, signed and delivered to your qualified intermediary.
- Day 180: you must close on the replacement property. There are no extensions except certain federally declared disasters.
Identification rules
Your written identification must follow one of these IRS rules:
- Three-property rule: identify up to three properties of any value.
- 200% rule: identify any number, as long as their combined value is ≤ 200% of what you sold.
- 95% rule: identify any number/value, but you must acquire at least 95% of the total identified value.
Like-kind, boot, and the QI
“Like-kind” is broad for real estate held for investment. Most U.S. investment real estate is like-kind to other investment real estate. To fully defer tax, you generally must reinvest all proceeds and replace any debt. Cash or debt relief you keep is called boot and is taxable. A Qualified Intermediary (QI) must hold your proceeds between sale and purchase; touching the money yourself disqualifies the exchange.
The Matching Rules
Match value, equity, and debt
Deadlines are only half the job. To defer your full gain, the replacement purchase generally has to measure up to what you sold in three ways. Fall short on any of them and the shortfall becomes taxable boot.
Value
Buy replacement property of equal or greater value than the property you sold.
Equity
Reinvest all of the equity from the sale. Any equity you keep out is generally taxable.
Debt
Take on equal or greater debt on the replacement. Exception: a reduction in debt can be offset by adding cash from outside the exchange.
One extra timing nuance: the 180-day window can be cut short by your tax-return due date for the year of the sale. If your exchange straddles tax season, filing an extension preserves the full period.
Quick Reference
What can and can’t be exchanged
May qualify
- Rental and business properties
- Land, including farmland and raw land
- Fractional (tenancy-in-common) interests
- Leasehold interests with 30+ years remaining
- Oil & gas interests
Does not qualify
- Your personal residence
- Property purchased or developed for resale (flips)
- Land under development for resale
- REIT shares (a 721 exchange is the separate path there)
Intent matters: property held primarily for resale generally doesn’t qualify, but if your intent changes and you hold for investment, eligibility may be reconsidered. Confirm your facts with a tax advisor.
What compliance protects you from: four taxes that can apply if you simply sell:
0 to 20%
Federal long-term capital gains, depending on income
3.8%
Net investment income tax for many higher-income investors
25%
Federal rate on depreciation recapture
0 to 13.3%
State income tax (nine states charge nothing)
Estimate your own numbers with the Capital Gains Tax Worksheet →
FAQ
Common questions
What if I miss the 45-day deadline?
The exchange fails and the sale becomes a taxable event. The deadlines are strict, which is one reason pre-packaged DSTs are popular. They can be identified and closed quickly.
Do the deadlines ever get extended?
Only in limited cases, such as certain IRS-declared disaster relief. Plan as if there are no extensions.
Can I exchange into multiple properties?
Yes, subject to the identification rules above. Many investors split proceeds across several DSTs to diversify.
Questions about your situation?
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Continue learning
Start with the complete DST & 1031 Exchange Guide, or explore a related topic:
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