What Is a 1031 Exchange?
A 1031 exchange — named after Section 1031 of the Internal Revenue Code — lets a real estate investor sell an investment property and reinvest the proceeds into a “like-kind” replacement property while deferring the capital gains tax and depreciation recapture that would normally be due on the sale. The tax isn’t forgiven; it’s postponed for as long as the investor keeps exchanging.
Since the 2017 Tax Cuts and Jobs Act, only real property held for productive use in a trade or business or for investment qualifies — personal property (equipment, vehicles, artwork) no longer does.
Fast Facts
- What it defers
- Federal capital gains tax, the 3.8% net investment income tax, depreciation recapture, and (in most states) state capital gains tax.
- Identification deadline
- 45 calendar days from the sale of the relinquished property to formally identify replacement property, in writing.
- Closing deadline
- 180 calendar days from the sale (or your tax return due date including extensions, whichever is earlier) to close on the replacement property.
- Qualified Intermediary
- Required for a standard delayed exchange. You cannot take actual or constructive receipt of the sale proceeds.
- What qualifies
- U.S. real property held for investment or business use, exchanged for other U.S. real property held for investment or business use.
- Reporting
- Reported to the IRS on Form 8824 for the tax year the relinquished property was transferred.
How a 1031 exchange works
In a standard delayed (“Starker”) exchange, the mechanics are:
- Sell the relinquished property. At closing, the proceeds go directly to a Qualified Intermediary (QI) — never to you. Taking receipt of the funds, even briefly, disqualifies the exchange.
- Identify replacement property within 45 days. You must identify candidate replacement properties in a signed, written notice delivered to the QI by midnight of the 45th day after the sale.
- Close within 180 days. You must acquire one or more of the identified properties within 180 days of the original sale (or your tax filing deadline including extensions, whichever comes first).
- Report on Form 8824. File IRS Form 8824 with your return for the year of the sale.
The 45-day and 180-day clocks run concurrently from the same start date — the transfer of the relinquished property — and the IRS does not extend them for weekends or holidays, except for federally declared disasters.
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
The identification rules
By the 45-day deadline, your written identification must satisfy one of three IRS rules (from Treas. Reg. §1.1031(k)-1):
- Three-property rule: identify up to three properties of any value.
- 200% rule: identify any number of properties, as long as their combined fair market value doesn’t exceed 200% of the value of what you sold.
- 95% rule: identify any number of properties of any value, but you must acquire at least 95% of the total value identified.
What “like-kind” means
For real estate, “like-kind” is interpreted broadly. Almost any U.S. real property held for investment or business use is like-kind to almost any other: raw land can be exchanged for an apartment building, a rental condo for a retail strip, farmland for a warehouse. The properties do not have to be the same type or quality. What matters is that both the relinquished and replacement properties are held for investment or productive use in a business — not as a personal residence or as inventory (a “dealer” property held primarily for resale does not qualify).
Deferring 100% of the tax: value, equity, and debt
To defer the entire gain, an investor generally must:
- Acquire replacement property of equal or greater value than the property sold;
- Reinvest all of the net proceeds; and
- Replace any debt that was paid off at sale with equal debt on the new property (or offset it with additional cash).
Anything you keep — cash left over, or a reduction in mortgage debt — is called “boot” and is taxable up to the amount of your realized gain. A partial exchange is allowed; you simply pay tax on the boot.
Common types of 1031 exchange
- Delayed (forward) exchange — the standard structure described above; you sell first, then buy within the 45/180-day windows.
- Reverse exchange — you acquire the replacement property before selling the old one. Because you can’t hold title to both at once, an Exchange Accommodation Titleholder parks one property under the safe harbor in Rev. Proc. 2000-37. Reverse exchanges are more complex and cost more.
- Improvement (construction) exchange — proceeds are used to build or improve the replacement property while it’s held by an accommodator.
State-level considerations
Section 1031 is federal law, but states differ in how they treat the deferred gain. Some states — notably California, Oregon, Montana, and Massachusetts — have “clawback” rules that track a deferred gain and tax it later if you exchange into out-of-state property and eventually cash out. Several states also impose nonresident withholding on real estate sales, and transfer or documentary-stamp taxes vary widely. Check your state’s specifics in our state-by-state guides, or see how all 50 states compare in our 2026 State of 1031 rankings.
Frequently asked questions
For a standard delayed exchange, yes. IRS safe-harbor rules require that you not have actual or constructive receipt of the sale proceeds, so a qualified intermediary (QI) must hold the funds and facilitate the exchange. A QI does not need to be located in your state, and only a minority of states license or regulate QIs.
You have 45 calendar days from the day you transfer the relinquished property to identify potential replacement property in a signed, written document delivered to your qualified intermediary. The deadline is strict and is not extended for weekends or holidays, except in federally declared disaster areas.
You must close on the replacement property within 180 calendar days of selling the relinquished property, or by the due date of your tax return (including extensions) for that year, whichever is earlier. The 45-day and 180-day periods run at the same time from the same starting date.
No. A 1031 exchange applies only to property held for investment or business use, not a personal residence. The sale of a primary home is instead governed by the Section 121 exclusion. There are strategies involving converting a property between investment and personal use, but they have their own holding-period requirements.
Boot is any value you receive in the exchange that is not like-kind real property — typically leftover cash, or a reduction in your mortgage debt. Boot is taxable up to the amount of your realized gain. To defer all tax, you generally must buy property of equal or greater value, reinvest all proceeds, and replace any debt that was paid off.
You report the exchange on IRS Form 8824 with your tax return for the year in which you transferred the relinquished property. The form captures the properties involved, the dates, the values, and any recognized gain from boot.
Next steps
- Use the 1031 timeline calculator above to estimate your 45-day and 180-day deadlines.
- Read your state’s specific rules and tax treatment.
- Browse metro-level market guides for local context.
This page is for educational purposes only and is not legal or tax advice. 1031 exchanges are governed by IRC §1031 and related Treasury Regulations; consult a qualified tax professional or attorney about your specific situation. Primary sources: IRC §1031, Treas. Reg. §1.1031(k)-1, Rev. Proc. 2000-37, IRS Form 8824.