How to Qualify for a 1031 Exchange: Deadlines and Like-Kind Rules

To qualify for a 1031 exchange, you need real property held for business or investment, a like-kind replacement of equal or greater value, and strict compliance with two federal deadlines: 45 days to identify the replacement in writing and 180 days to close on it. You also have to route the money through a qualified intermediary, keep the same taxpayer on both sides of the deal, and reinvest all of your net proceeds. Miss any one of these and the IRS treats the transaction as a taxable sale.

Property That Qualifies

Section 1031 applies only to real property held for productive use in a trade or business or for investment.¹ Rental houses, apartment buildings, commercial space, raw land, and farmland all qualify. Two categories don’t:

Your primary residence. A home sale falls under Section 121, which can exclude up to $250,000 in gain ($500,000 for married couples filing jointly). It has no place in a 1031 exchange.²
Property held for sale. Fix-and-flip projects, subdivided lots meant for quick resale, and other dealer inventory fail the “held for investment” test because the owner’s intent is resale.¹

Personal property no longer qualifies at all. Before the Tax Cuts and Jobs Act of 2017, equipment, vehicles, and artwork could be exchanged; today only deeded real estate is eligible.³ Machinery inside a qualifying building has to be carved out of the deal.

The statute sets no minimum holding period, but the IRS looks at how long you owned the property and what you actually did with it. A rental you sell after a few months of ownership invites scrutiny. The closer the facts look to a genuine investment hold, the safer the exchange.

The Like-Kind Standard

“Like-kind” refers to the nature of the property, not its specific type.⁴ An apartment building is like-kind to a strip mall. Raw land is like-kind to an office tower. A single-family rental is like-kind to a 200-unit complex. You can shift property type, geographic market, and strategy without breaking the exchange.

A Delaware Statutory Trust (DST) interest also qualifies under Revenue Ruling 2004-86, provided the trust is structured so the trustee cannot buy or sell property, renegotiate leases, refinance debt, or make significant modifications.⁵ If the trustee has that discretion, the IRS treats the DST as a business entity and the exchange fails.

The Same Taxpayer Rule

The name on the deed when you sell has to match the name on the deed when you buy. If you sell in your own name, your LLC cannot buy the replacement. If a partnership sells, the partnership must buy.⁴

The one meaningful exception involves single-member LLCs the IRS treats as disregarded entities. Because a disregarded LLC and its sole owner are the same taxpayer for federal purposes, the LLC can sit on one side of the transaction while the individual sits on the other. Multi-member LLCs, corporations, and trusts don’t get that flexibility. The sale deed, exchange agreement, and purchase deed all have to match the entity filing the return. This cannot be fixed after closing.

You Must Use a Qualified Intermediary

You cannot touch the sale proceeds at any point in the exchange. The funds must flow through a qualified intermediary (QI), an independent third party who holds the money in a segregated account and wires it directly to the closing agent for the replacement purchase.⁴ Taking even brief possession of the funds is called constructive receipt and it destroys the deferral.

Federal regulations disqualify anyone who acted as your employee, attorney, accountant, investment banker, or real estate agent within the two years before the exchange.⁶ Your closing attorney, your CPA, and your broker are all off-limits. You need an independent exchange company.

The QI industry is largely unregulated at the federal level. A few states require intermediaries to carry fidelity bonds and errors-and-omissions insurance; most don’t. If your intermediary goes bankrupt or commits fraud while holding your funds, recovery is uncertain. Before hiring one, ask about fidelity bond coverage, whether exchange funds sit in segregated accounts rather than commingled with operating funds, and whether those accounts carry FDIC protection. Standard delayed exchanges typically run $600 to $1,500 in fees.

The 45-Day Identification Window

You have exactly 45 calendar days from the date you transfer the relinquished property to identify potential replacements in writing.¹ The identification must be signed and delivered to someone involved in the exchange, typically your qualified intermediary.⁴

Three rules govern how many properties you can name:

Three-property rule. Identify up to three properties regardless of their combined value. This is the most commonly used approach.
200% rule. Identify any number of properties, but their combined fair market value cannot exceed twice the value of what you sold.
95% rule. Identify any number of properties at any total value, but you must actually acquire at least 95% of what you identified.

The 95% rule sounds generous and is dangerous in practice. If one deal falls through and you drop below the threshold, the entire exchange fails. Most investors stick with the three-property rule unless portfolio strategy demands otherwise.

The 180-Day Completion Deadline

All replacement property must be acquired by the earlier of two dates: 180 calendar days after you transferred the relinquished property, or the due date (including extensions) of your federal income tax return for the year of the sale.¹

That second limit trips people up. Sell in October and your return is due the following April 15, well before 180 days expire. Filing a tax extension pushes the return due date out and preserves the full 180-day window. Forgetting that extension is one of the most common and most expensive mistakes in 1031 planning.

Neither deadline can be extended for any reason short of a presidentially declared disaster.⁴ Title delays, lender problems, weekends, and holidays don’t buy extra time. If day 180 lands on a Sunday, you still have to close by that Sunday.

Equal or Greater Value, and No Boot

Full deferral requires the replacement property to be worth at least as much as what you sold, and every dollar of your net sale proceeds has to go into the new purchase. Any shortfall is called boot, and boot is taxable as a capital gain in the year of the exchange.

Cash boot is simple. Sell for $500,000, reinvest only $450,000, and you owe tax on the $50,000 difference. Mortgage boot is subtler. If you carried a $300,000 loan on the old property but only take on a $200,000 loan on the replacement, that $100,000 of debt relief is also boot. You can offset mortgage boot by putting additional cash into the deal, but the planning has to happen before closing.

A partial exchange still works. You don’t lose the entire deferral because some boot exists; you only pay tax on the boot portion, and the rest of the gain remains deferred. The clean version, though, is zero boot: buy at equal or greater value and reinvest all of your equity.

Related-Party Exchanges

You can exchange with a family member or an entity you control, but the rules tighten. Under Section 1031(f), if you exchange with a “related person”—siblings, spouses, parents, children, grandchildren, and entities where you hold a significant ownership stake—both parties must hold their respective properties for at least two years after the last transfer.¹ If either party sells inside that window, the original deferral is retroactively disqualified and the gain becomes taxable in the year of the premature disposition.⁷

The IRS also blocks workarounds. Routing property through an intermediary so it technically passes through an unrelated third party before reaching a family member has been rejected by the Tax Court. If the end result looks like a related-party swap, the IRS treats it as one.

Three exceptions apply to the two-year holding rule: death of either party, involuntary conversion such as a fire or condemnation, and transactions where the taxpayer shows to the IRS’s satisfaction that neither the exchange nor the later sale had tax avoidance as a principal purpose.¹ Any related-party exchange requires Form 8824 for the year of the exchange and the following two tax years.⁷

Vacation Homes and Mixed-Use Property

A property you use personally part of the year and rent the rest sits in a gray area. Revenue Procedure 2008-16 creates a safe harbor.

To qualify as relinquished property, the home must have been rented at fair market value for at least 14 days in each of the two years before the exchange, and your personal use cannot exceed the greater of 14 days or 10% of the actual rental days in each of those years. The same thresholds apply in reverse for the replacement: rent it for at least 14 days per year and limit personal use accordingly for the first two years after the exchange. Rent for the minimum 14 days and your personal use is capped at 14 days. Rent for 300 days and you can use it personally for up to 30.

For a genuinely mixed-use property, such as a duplex where you live in one unit and rent the other, only the investment portion qualifies. An appraisal allocates fair market value between the personal and investment portions, and each portion is reported separately on your return.

Reporting on Form 8824

Every 1031 exchange must be reported on IRS Form 8824, filed with your federal income tax return for the year you transferred the relinquished property. The form requires descriptions of both properties, the transfer dates, the adjusted basis of what you sold, and the deferred gain amount.⁷

If the exchange spans two calendar years—you sell in November and close on the replacement in February—you still report it on the return for the year you sold the relinquished property, not the year you acquired the replacement.⁷ The IRS uses Form 8824 to track your deferred gain and calculate the basis of the replacement property, so accuracy matters. Errors can trigger audits or create basis miscalculations that cost you far more when you eventually sell.

1
Office of the Law Revision Counsel. 26 U.S.C. 1031 – Exchange of Real Property Held for Productive Use or Investment
2
Office of the Law Revision Counsel. 26 U.S.C. 121 – Exclusion of Gain From Sale of Principal Residence
3
Internal Revenue Service. Tax Cuts and Jobs Act (TCJA) Training Materials
4
Internal Revenue Service. Like-Kind Exchanges Under IRC Section 1031
5
Internal Revenue Service. Revenue Ruling 2004-86
6
Internal Revenue Service. Revenue Procedure 2003-39
7
Internal Revenue Service. Instructions for Form 8824