1031 Process
A 1031 exchange works through a structured process with strict IRS timelines: you sell your property, identify a replacement within 45 days, and close on it within 180 days while using a qualified intermediary to hold the funds.
Step-by-Step Process of a 1031 Exchange
• Decide to sell your property: Begin by listing or accepting an offer on your investment property. This initiates the exchange process.
• Engage a Qualified Intermediary (QI): Before closing, hire a QI to handle funds and paperwork. You cannot receive the sale proceeds directly.
• Sell the relinquished property: At closing, the QI takes possession of the funds from the sale.
• Identify replacement property: Within 45 days, you must formally identify potential replacement properties in writing to your QI. You can list up to three properties (or more under certain IRS rules).
• Purchase replacement property: Within 180 days of selling the original property, you must close on one of the identified properties.
• Complete exchange documentation: The QI ensures IRS compliance by preparing exchange agreements and filing the necessary paperwork.
• Report to IRS: File IRS Form 8824 with your tax return to document the exchange.
⏰ Timeline Overview
Step Deadline
Sell original property Day 0
Identify replacement property Within 45 days
Close on replacement property Within 180 days
⚠️ Key Rules to Remember
• Like-kind requirement: Both properties must be held for investment or business use.
• No direct receipt of funds: Funds must go through the QI.
• Strict deadlines: Missing the 45-day or 180-day window disqualifies the exchange.