Understanding 1031 Exchanges

What Is a 1031 Exchange?

A 1031 Exchange, or a Like Kind Exchange, as it implies, allows you to defer paying capital gains tax on the sale of a business or investment property by reinvesting the proceeds in other real estate. A Like Kind Exchange is defined by Internal Revenue Code (IRC) Section 1031. 1031 Exchanges are also referred to colloquially as the following:

A 1031 Tax Deferred Exchange offers taxpayers one of the last great opportunities to build wealth and save taxes. By completing a 1031 Exchange, the Taxpayer (“Exchanger”) can dispose of investment or business-use assets, acquire Replacement Property and defer the tax that would ordinarily be due upon the sale.

1031 Exchanges have been part of the tax code since 1921. Section 1031 has permitted a taxpayer to exchange business-use or investment assets for other like-kind business use or investment assets without recognizing taxable gain on the sale of the old assets. The taxes which otherwise would have been due from the sale are thus deferred.

Key 1031 Exchange Updates for 2025

Stay updated on the latest changes, rules and regulations impacting 1031 Exchanges in 2025.  Explore market trends and insights to navigate Like Kind Exchanges with ease.

• Capital Gain Estimator

Types of Properties Commonly Used in 1031 Exchanges

Many types of real property are eligible for a 1031 Exchange as long as the Relinquished and Replacement Properties are “Like-Kind” to each other. The term Like Kind refers to the nature or character of the property, ignoring differences of grade or quality. For example, residential, commercial, vacant land, mixed-use, and single family rentals are all considered to be Like-Kind to one another. Primary residences that are used solely for personal purposes are never eligible for a 1031 Exchange. For more information see our Qualified “Like-Kind” Property page.

Basic 1031 Exchange Rules & Key Takeaways

A 1031 Exchange allows investors to defer Federal capital gains tax, state ordinary income tax, net investment income tax, and depreciation recapture on the sale of investment property if certain criteria are met including:

• Buy Replacement Property for equal or greater than sold for and reinvest all proceeds.
• Identify Replacement Property within 45 days of close of sale
• Purchase Replacement Property within 180 days of close of sale
• Must sell and buy property that is considered “like-kind” to each other.
• The proceeds from the sale must be held by a Qualified Intermediary (QI), a third-party that ensures the exchange complies with IRS regulations. See below for Definition of a Qualified Intermediary.
• The new property must be equal or greater value to the old value to avoid paying “Boot.” If the new property is less than the sale of the old property, a 1031 Exchange can still be valid, but the Exchanger may have to pay taxes on the unused capital gains.
• You cannot receive any cash or other non-like-kind property during the exchange.
• Capital gains taxes are deferred, not eliminated. You will eventually owe taxes on the gain when you sell the Replacement Property without conducting another exchange.

1031 Exchange Timeline

There are two key deadlines that the Exchanger must meet to have a valid exchange (also known as a Delayed, Like-Kind or Starker Exchange) The timeline of a 1031 Exchange typically begins with the closing of the Relinquished Property, followed by a strict 45-day Identification Period during which the investor must identify potential Replacement Properties. The 1031 Exchange then must be completed within 180 days from the closing of the initial property, including closing on the new property. In some instances, this time period may be shorter. Adhering to these timelines is crucial for maintaining the tax-deferred status of the exchange, and failure to meet these deadlines can result in disqualification and significant tax liabilities.

45 Day Identification Period

Investors have 45 calendar days from the sale of the Relinquished Property to identify Replacement Properties. The Identification Period starts on the date the benefits of and burdens of ownership of the Relinquished Property transfers to the purchaser

180 Day Rule

Exchangers have to complete their exchange within 180 calendar days starting from the date the exchanger transferred their Relinquished Property. This means all Replacement Property must be closed within those 180 days which is roughly 6 months. In certain circumstances this date may be shorter.

The time periods for the 45-day Identification Period and the 180-day Exchange Period are very strict and cannot be extended even if the 45th day or 180th day falls on a Saturday, Sunday or legal holiday. They may, however, be extended by up to 120 days if the Exchanger qualifies for a disaster extension under Rev. Proc. 2007-56.

When to Consider a 1031 Exchange?​

Put simply, you can do a 1031 Exchange or consider a 1031 Exchange when you do not live in a property you own and would like to sell the property and use those proceeds in a new real estate endeavor. ​

Types of 1031 Exchanges

• Simultaneous Exchange
• Leasehold Improvement Exchange
• Forward/ Delayed Exchange (Most Common type of Exchange)
• Reverse Exchange
• Improvement/ Build-to-Suit Exchange

Benefits to a 1031 Exchange

Preparing for a 1031 Exchange

Preparing for a 1031 Exchange involves several important steps to ensure a smooth and successful transaction.

Additional Considerations for Your 1031 Exchange

When preparing for a 1031 Exchange, there are several additional considerations beyond the basic timeline that you should keep in mind.

1031 Exchange FAQs

Here are some frequently asked questions (FAQs) about 1031 Exchanges:

Additional 1031 Exchange Resources:

• 1031 FAQ

• Deadlines and Identification Requirements

• How Important is your QI?

• Top 1031 Misconceptions for 2023

• Capital Gain Estimator – how much tax can you potentially save?

• Real Estate Exchanges

• 1031 Trends for 2024

• IPX1031 Knowledge Center

1031 Exchange News

When an unforeseen crisis occurs, it may be difficult for taxpayers to adhere to the strict deadlines for 1031 Exchanges. Because of this, the Internal Revenue Service through Revenue Procedure 2018-58, allows certain taxpayers impacted by federally declared disasters to get more time to meet tax-related deadlines including those for 1031 Like-Kind Exchanges. The latest disaster relief deadlines postponements can be found on the IRS website.

Qualified Intermediary Choice For Your 1031 Exchange

Tax rules for non-simultaneous exchanges require the use of an independent third party Qualified Intermediary (QI). Prior to the transfer of the old investment property, the services of a QI are retained to prepare the necessary documentation, securely hold your exchange funds and acquire your new investment property.

The QI holds the sale proceeds for the benefit of the taxpayer during the exchange, disbursing funds for purchase of like-kind Replacement Property, and returning any unused funds to the taxpayer at the end of the exchange. Choosing a Qualified Intermediary (QI) to handle your exchange is a critical part of your 1031 Exchange. Not all QIs are the same. IPX1031 is the best choice for your 1031. Here’s why:

• Attorneys & Certified Exchange Specialists (CES®)
• Full Service Qualified Intermediary
• Superior Customer Service