1031 Exchange Fundamentals
Timelines, key IRS rules, and exchange requirements.
A 1031 exchange allows real estate investors to defer capital gains taxes by reinvesting proceeds from the sale of an investment property into qualifying replacement property. While the concept is straightforward, successful execution depends on strict timelines, precise documentation, and disciplined coordination across multiple parties.
This page outlines the core mechanics of a 1031 exchange to help investors and advisors establish a clear foundation before an exchange begins.
What Is a 1031 Exchange?
A 1031 exchange—named after Section 1031 of the Internal Revenue Code—permits the deferral of capital gains taxes when investment or business-use real estate is exchanged for other qualifying real estate.
For an overview of how these rules are applied in practice, see
To qualify, the transaction must meet specific IRS requirements related to:
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Property use
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Timing
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Replacement identification
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Use of a qualified intermediary
Failure to meet any of these requirements can result in the exchange being disqualified.
Core 1031 Exchange Timelines & Deadlines
The 45-Day Identification Period
Within 45 days of closing the sale of the relinquished property, the exchanger must formally identify potential replacement properties in writing.
Key points:
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Identification must be delivered to the qualified intermediary or other permitted party
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Properties must be unambiguously described
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Changes after Day 45 are not permitted
The 180-Day Exchange Period
The exchanger must acquire one or more of the identified replacement properties within 180 days of the sale of the relinquished property (or the due date of the tax return, whichever comes first).
These timelines run concurrently and are strictly enforced.
Like-Kind Property Rules
For real estate, “like-kind” is broadly defined. Most real property held for investment or business purposes qualifies when exchanged for other real property of similar use.
Examples of qualifying property:
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Rental properties
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Commercial buildings
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Multifamily assets
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Certain fractional interests, including Delaware Statutory Trusts (DSTs)
Primary residences and property held primarily for resale generally do not qualify.
The Role of the Qualified Intermediary (QI)
A qualified intermediary is required in every 1031 exchange. The QI:
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Holds sale proceeds to prevent constructive receipt
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Receives identification notices
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Facilitates the exchange documentation
The qualified intermediary must be independent and cannot be the exchanger’s attorney, accountant, broker, or agent.
The exchanger may not take control of the funds at any point during the exchange process.
Proper coordination with the QI is essential to maintaining compliance.
Common Identification Rules
Most exchanges rely on one of the following IRS identification methods:
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Three-Property Rule
Identify up to three properties, regardless of value. -
200% Rule
Identify any number of properties as long as the total value does not exceed 200% of the relinquished property’s value. -
95% Rule
Acquire at least 95% of the value of all identified properties.
Understanding which rule applies helps reduce execution risk early in the process.
Common Pitfalls to Avoid
Even experienced investors can encounter issues without proper structure and coordination. Common challenges include:
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Missing identification deadlines
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Improper property descriptions
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Incomplete documentation
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Misalignment between advisors
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Lack of clarity around replacement strategy early in the process
Most issues arise from timing and communication—not from the tax code itself—underscoring the importance of early planning and coordination.
How i1031u.com Supports the Process
i1031u.com is designed to bring structure and clarity to the exchange process by helping investors and advisors stay aligned on timelines, roles, and decision-making.
We work alongside—not in place of—qualified intermediaries, CPAs, attorneys, and advisors to support informed execution from start to finish.
Continue Learning
Once the foundational mechanics are understood, the next step is evaluating replacement property strategies, including diversification options and income continuity considerations.
Advisors may also explore our Resources for Advisors.
This material is provided for educational purposes only and is not intended as tax, legal, or investment advice. Investors should consult their own tax and legal advisors regarding their specific circumstances.