Jump to section
Key takeaways
- Available only for real property held for investment or business use — personal residences do not qualify.
- 45-day identification window and 180-day closing window are both calendar-day, not business-day, requirements.
- Use of a Qualified Intermediary (QI) is mandatory — the seller cannot touch the proceeds.
- Defers, doesn't eliminate, capital gains — basis carries over to the replacement property.
How Olomon thinks about this
1031 exchanges live and die on documentation: dates, intermediaries, proceeds flow, basis carryover, and operating-entity changes. Olomon stores the entire chain — deeds, settlement statements, QI agreements, identification letters — alongside the affected real-estate assets, so the household's CPA and attorney share one timeline of the transaction.
Quick facts
In-depth definition
A 1031 exchange is one of the most powerful planning tools in real estate. Done correctly, it lets you sell a property, defer the capital gains tax that would otherwise be due, and reinvest the full proceeds into the next property[1] — effectively scaling without bleeding equity to taxes at every transaction.
The exchange is reported on IRS Form 8824 in the year the relinquished property is sold.[2]
Core mechanical rules
- Like-kind: nearly any U.S. investment real estate qualifies as like-kind to any other.
- Qualified Intermediary: a QI holds the proceeds between sale and purchase — the seller cannot.
- 45-day rule: replacement properties must be identified in writing within 45 days of the sale.
- 180-day rule: replacement purchase must close within 180 days of the sale.
- Equal-or-greater value: to fully defer gain, the replacement must equal or exceed the sale price (and equal or exceed the debt).
How to complete a 1031 exchange
The end-to-end procedural steps for executing a Section 1031 like-kind exchange of investment real estate.
- 1
Engage a Qualified Intermediary before closing
Before relinquished sale closes
Sign an Exchange Agreement with a Qualified Intermediary (QI) before the sale of the relinquished property closes. The QI will hold sale proceeds; the seller can never receive or constructively receive the funds.
- 2
Close the sale of the relinquished property
Day 0
At closing, sale proceeds wire directly to the QI, not to the seller. The 45-day identification window and 180-day closing window both start on this date.
- 3
Identify replacement property in writing
Within 45 days of sale
Within 45 calendar days of the sale, deliver a written, signed identification of replacement property to the QI under one of the IRS-permitted rules (3-property, 200% rule, or 95% rule).
- 4
Close on the replacement property
Within 180 days of sale
Acquire the identified replacement property within 180 calendar days of the sale. The QI uses the held proceeds to fund the purchase. To fully defer gain, the replacement value and debt must equal or exceed the relinquished property's.
- 5
Report the exchange on Form 8824
With that year's tax return
File IRS Form 8824 with the tax return for the year of the exchange. Maintain the QI agreement, identification letters, settlement statements, and basis carryover schedule.
Frequently asked questions
Generally no. Section 1031 requires real property held for productive use in a trade or business or for investment. Vacation homes only qualify under narrow IRS safe-harbor conditions (Rev. Proc. 2008-16); primary residences are excluded.
The exchange fails and the gain becomes immediately taxable. The deadlines are statutory and cannot be extended for ordinary delays.
Sources
Primary, authoritative references.
- 1
Internal Revenue Service (IRS)
Like-Kind Exchanges — Real Estate Tax TipsCited for: Authoritative IRS overview
- 2
Continue exploring
Related terms
More from Taxes & Business.
Cite this page
APAOlomon Editorial Team. (2026). 1031 exchange. Olomon Financial Glossary. https://olomon.com/financial-glossary/1031-tax-exchange