Real estate investors have one of the most powerful tax-deferral tools available when selling investment property, which is the 1031 Exchange.
A 1031 Exchange allows you to defer capital gains taxes when you sell an investment or business-use property and reinvest the proceeds into another like-kind property. This strategy can help investors preserve equity, grow their portfolio faster, and maximize long-term returns.
However, the 1031 Exchange process has strict rules and timelines that must be followed to qualify for tax deferral. Missing a deadline or mishandling funds can disqualify the exchange completely.
Step-by-Step 1031 Exchange Timeline
Day 0 – Sell your investment property
Your 1031 Exchange officially begins the day you close on the sale of your property. You cannot take possession of the sale proceeds; they must be transferred directly to a Qualified Intermediary (QI), who will hold the funds until your new property purchase is complete.
Day 1–45 – Identify your replacement property
Within 45 days of selling your property, you must identify potential replacement properties in writing and provide that list to your QI. The properties you list must meet IRS requirements for like-kind exchanges.
Day 46–180 – Close on your replacement property
You have 180 days from the original sale date to close on one or more of the properties you identified. Both the 45-day and 180-day deadlines run concurrently, and there are no extensions even for weekends or holidays.
Missing either deadline or taking possession of the funds will disqualify the exchange and trigger capital gains tax.
Why Work With a Qualified Intermediary
A Qualified Intermediary plays a critical role in ensuring your 1031 Exchange meets all IRS rules. The QI:
Because IRS rules prohibit the investor or their agent from holding the funds directly, choosing the right QI is essential to protect your deferral.
Why Planning Ahead Is Essential
A successful 1031 Exchange requires coordination and planning among your tax advisor, real estate agent, title company, and Qualified Intermediary.
To make the most of the tax benefits:
At The CFO Associates, we help real estate investors structure 1031 Exchanges correctly and strategically so you can defer taxes, protect your gains, and reinvest with confidence.
If you’re planning to sell an investment property, reach out to our team to discuss how a 1031 Exchange can fit into your long-term tax and investment strategy.