Start with the property—not the deadline
A like-kind exchange can defer recognition of gain when qualifying real property is exchanged for other qualifying real property. Both the property transferred and the property received generally must be held for investment or productive use in a trade or business.
Since 2018, Section 1031 generally applies only to real property. A personal residence, property held primarily for sale, vehicles, equipment, and other personal or intangible property do not qualify under the ordinary Section 1031 rules.
Know the two clocks
For a typical deferred exchange, the identification period and exchange period begin when the relinquished property is transferred. They run at the same time; the 180-day period does not begin after the 45-day period ends.
- Identify potential replacement property in writing no later than 45 days after the transfer.
- Receive the replacement property by the earlier of 180 days after the transfer or the due date, including extensions, of the return for the transfer year.
- Calendar days count. Build in time for title, financing, due diligence, and closing delays.
Protect the exchange structure before money moves
Receiving or controlling the sale proceeds can create actual or constructive receipt and defeat a deferred exchange. IRS rules provide safe-harbor structures, including properly arranged qualified-intermediary transactions. The exchange documents and funds flow should be settled before the relinquished property closes.
A qualified intermediary coordinates the exchange mechanics; that role is not a substitute for tax or legal advice. Ask a tax professional to evaluate qualification, gain, basis, related-party issues, and reporting, and ask counsel or the closing team to review the contracts and title structure.
Do not reduce the tax analysis to one slogan
Money or non-like-kind property received in the exchange can trigger recognized gain, often called boot. Debt, closing costs, cash retained, basis, and replacement-property economics can all affect the result. The common advice to simply buy an equal-or-higher-priced property is not a complete tax calculation.
The exchange is reported on Form 8824. Deferral also is not forgiveness: the basis rules generally carry deferred gain into the replacement property and affect a later sale.
Before-you-close checklist
- Ask a tax professional to estimate realized gain, recognized gain, adjusted basis, depreciation recapture considerations, and available alternatives.
- Choose and vet the exchange intermediary before closing; confirm how funds and documents will move.
- Confirm the property is held for qualifying investment or business use and review any personal-use history.
- Confirm the taxpayer and vesting plan for the relinquished and replacement properties before signing contracts.
- Write down the exact 45-day and 180-day dates and an earlier internal deadline.
- Plan for identification limits, due diligence, financing, backup properties, and a failed-exchange scenario.