How 1031 Exchanges Work
A complete step-by-step guide to deferring capital gains taxes through 1031 exchanges. Learn the process, deadlines, and requirements for successful tax-deferred property swaps.
The 1031 Exchange Process
A 1031 exchange allows you to sell investment property and reinvest the proceeds in new property while deferring all capital gains taxes. Here's exactly how it works.
Complete Step-by-Step Process
Decide to Sell Your Property
When you're ready to sell your investment or business property, contact National 1031 Center as soon as you have a potential buyer or are listing the property. Early engagement ensures proper planning and documentation.
⏰ Timeline: Before listing or accepting an offer
The earlier you involve us, the better we can structure your exchange for maximum benefit.
Sign Exchange Documents
Before closing on your sale, you must sign our exchange agreement. This establishes National 1031 Center as your Qualified Intermediary and creates the legal framework for your tax-deferred exchange. Learn more about choosing the right qualified intermediary for your exchange.
🚨 Critical: Must be completed BEFORE closing
You cannot start a 1031 exchange after you've already closed on your sale.
Close on Your Sale (Day 0)
At closing, your sale proceeds go directly to National 1031 Center instead of to you. We hold your funds in segregated, FDIC-insured accounts. We are bonded and insured for your protection. Your exchange clock officially starts ticking.
✅ What happens at closing:
- • Sale proceeds transferred directly to your QI
- • Funds deposited in secure, segregated account
- • Your 45-day identification period begins
- • Your 180-day exchange period begins
Identify Replacement Properties (Day 1-45)
You have exactly 45 calendar days from your sale closing to identify potential replacement properties in writing to National 1031 Center. Choose your identification rule based on your investment strategy. Learn more about managing these critical deadlines and timeline requirements.
3-Property Rule (Most Popular)
Identify up to 3 properties of any value. You can close on any or all of them.
200% Rule
Identify unlimited properties as long as their total value doesn't exceed 200% of your sold property's value.
95% Rule
Identify any number of properties, but you must purchase at least 95% of the total identified value.
⚠️ Day 45 Deadline
Identification must be in writing and received by your QI by midnight on day 45. No extensions allowed.
Shop and Negotiate (Day 1-180)
While your identification deadline is day 45, you can begin shopping for replacement properties immediately after your sale closes. Negotiate purchases, secure financing, and complete due diligence on your identified properties.
💡 Pro Tips:
- • Start shopping before your sale closes
- • Have backup properties identified
- • Secure financing pre-approval early
- • Coordinate with your real estate agent
Close on Replacement Property (By Day 180)
Complete your purchase within 180 days of your original sale (or by your tax return due date, whichever is earlier). National 1031 Center coordinates with your closing agent to ensure proper fund transfers and documentation.
✅ At replacement property closing:
- • We transfer your exchange funds to closing
- • You receive title to your new property
- • Exchange documentation is completed
- • You've successfully deferred your taxes!
File Your Tax Return
Report your exchange on IRS Form 8824 with your tax return. National 1031 Center provides all necessary documentation including exchange agreements, identification notices, and closing statements.
📋 We provide complete documentation:
- • Exchange agreement and amendments
- • Property identification forms
- • All closing statements
- • Form 8824 preparation assistance
Critical Timeline
Sale Closes
Exchange begins
ID Deadline
Must identify
Purchase Deadline
Must close
Important: No Extensions Allowed
These deadlines are set by federal law and cannot be extended for any reason, including weekends, holidays, natural disasters, or personal emergencies. Learn more about the complete IRS rules and regulations governing 1031 exchanges.
Key Requirements
To Defer ALL Taxes
-
Equal or Greater Value
Purchase price ≥ sale price
-
Equal or Greater Debt
New loan ≥ paid-off loan (or add cash)
-
Use All Proceeds
Reinvest all sale proceeds
Property Requirements
-
Investment Use
Both properties for business or investment
-
Like-Kind
Real property for real property
-
Same Taxpayer
Same ownership structure
Ready to Start Your 1031 Exchange?
Let our experts guide you through every step of the process with confidence and security.
Questions? Call us at (877) 483-0427