Resources · 1031 exchange guide
Sell, exchange, and keep the gain working.
A 1031 exchange lets you defer federal tax on the gain from selling investment or business real estate, as long as you reinvest in more real estate under a strict set of rules. Here is how it works when you sell commercial property.
The two deadlines
45 days to identify. 180 days to close.
Day 0
You close the sale
The exchange clock starts the day the relinquished property transfers. Proceeds go to a qualified intermediary, never to you.
Day 45
Identify replacements
Midnight of day 45 is the deadline to identify replacement property in writing, signed, delivered to the intermediary or another permitted party.
Day 180
Close on replacements
You must acquire the replacement property by day 180, or by your tax return due date for that year if earlier, unless you file an extension.
The rules that matter
Six things that make or break an exchange
Real property only
Since 2018, Section 1031 applies only to real property held for investment or for use in a trade or business. Equipment, furniture, and other personal property sold with the building do not qualify and are taxed normally.
Never touch the money
If you receive the sale proceeds, or have the right to them, the exchange fails. A qualified intermediary holds the funds from closing until they are used to buy the replacement property. Your own attorney, agent, or anyone who acted for you recently generally cannot serve.
The deadlines do not stretch
The 45-day and 180-day periods run at the same time, count calendar days including weekends and holidays, and are not extended because a closing slipped. Relief exists only for narrow cases such as federally declared disasters.
Same taxpayer on both sides
The taxpayer that sells must be the taxpayer that buys. If a multi-member LLC or partnership sells, that entity — not its members individually — should take title to the replacement. A single-member LLC that is disregarded for tax purposes is treated as its owner (Treas. Reg. § 301.7701-3), so you can sell in your own name and buy through your single-member LLC, or the reverse. Adding or removing members, or dropping property out of a partnership, mid-exchange changes the taxpayer and can break it.
Boot is taxable
Cash you take out, and debt that is paid off and not replaced, is treated as boot and taxed. To defer all of the gain, buy replacement property of equal or greater value, reinvest all of the net equity, and replace the debt with new debt or added cash.
Related parties need two years
Exchanges with related parties are allowed but come with a two-year holding requirement for both sides. If either disposes of the property inside that window, the deferral can unwind.
Identification
How many properties you can name
- Three-property rule
- Identify up to three properties of any value.
- 200% rule
- Identify any number of properties, as long as their combined value does not exceed 200% of what you sold.
- 95% rule
- Identify more than that, but then you must acquire at least 95% of the value you identified.
Identification must be in writing, signed by you, unambiguous (a street address or legal description), and delivered before midnight on day 45. Property you actually acquire within the 45 days counts as identified.
Selling into an exchange
Where a direct buyer helps
An exchange is a race against two clocks. The sale side is the part most sellers can't control.
No financing contingency
We use our own capital, so the sale does not wait on a lender or fall apart in underwriting.
A date you can plan around
You choose the closing date, so you can line it up with the replacement purchase and your intermediary.
As-is, no repair credits
We price condition into the offer instead of renegotiating late, which keeps the exchange value predictable.
State treatment
How your state handles the gain
State conformity, withholding, and transfer taxes vary. Each state page covers its own rules, with sources.
Choose your state
50 state markets
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
FAQ
1031 exchange questions
Can I do a 1031 exchange when I sell to Dizposition?
Yes. We are an ordinary buyer from the exchange's point of view. You engage a qualified intermediary before closing, the purchase agreement is assigned to them, and the proceeds go to them at closing. We are happy to coordinate dates with your intermediary.
Why does certainty of closing matter so much in an exchange?
Because the clocks start at your sale and you often line up the replacement purchase in parallel. A sale that slips or falls apart can push the replacement past day 45 or day 180. A principal buyer with no financing contingency removes most of that risk.
Is depreciation recapture deferred too?
Mostly, but not always. Section 1250 recapture on the building is generally deferred when you exchange into other real property and take no boot — it carries into the replacement and comes due when you eventually sell without exchanging. Section 1245 recapture can be triggered now: components a cost-segregation study depreciated as personal property have not qualified as like-kind property since the 2017 tax law, and recapture can also be due if you receive boot or the replacement holds less section 1245 property than you gave up. The Form 8824 instructions (line 21) and Treas. Reg. § 1.1031(a)-3 set out the rules; have a tax advisor run the numbers before you close.
Can I buy the replacement property before I sell?
Yes, through a reverse exchange, in which an exchange accommodation titleholder holds one of the properties until the other side closes. It follows its own timing rules and costs more to set up, so talk to your intermediary early.
Does my state tax the gain even if the IRS defers it?
Every state follows the federal deferral: states with an income tax start from federal income under their own conformity statutes, and the rest have no income tax to apply. The details still differ, though. Some track deferred gain when the replacement property is out of state, and some withhold tax from nonresident sellers. Each state page, linked under How your state handles the gain above, covers its rules and cites the statute.
Is this tax advice?
No. This is a plain-English overview of the federal rules. Exchanges have traps that depend on your facts, so work with a qualified intermediary and a tax advisor before you close.
General information about IRC § 1031 (as amended by the Tax Cuts and Jobs Act of 2017), Treas. Reg. §§ 1.1031(a)-3 and 1.1031(k)-1, Treas. Reg. § 301.7701-3, and the IRS Instructions for Form 8824, not tax or legal advice. Talk to a qualified intermediary and your tax advisor about your situation. See also our profit calculator and vendor network.
Exchange-ready close
Selling into an exchange?
Tell us your 45-day and 180-day dates. We'll build the closing around them.