Guides / §1031 Exchange
The 1031 Exchange: how to defer the tax bill
Sell an investment property and roll the proceeds into another one, and you can put off paying capital-gains tax — not skip it, put it off. Miss a deadline by even a day, though, and the whole deferral falls apart. The timeline is where this starts.
What a §1031 exchange actually is
Sell an investment or business property and use the proceeds to buy a like-kind investment or business property, and the capital-gains tax on your sale gets deferred — not forgiven — under IRC §1031. The tax doesn’t disappear; it waits until you sell the next property. Getting that distinction straight is where understanding this actually starts.
The 45-day / 180-day timeline [CONFIRMED]
Both clocks start on the same day — the date you sell (relinquish) the original property. By the time 45 days are up, you’ve already burned through nearly a third of the 180.
Day 45 — replacement property identification deadline
You must identify candidate replacement properties in writing and notify your QI by this date. Miss it and the entire exchange is disqualified.
Day 180 — acquisition completion deadline
Closing on the identified property has to be done by this date. If your tax return is due before day 180, that filing date effectively becomes your real deadline (an extension can buy you the extra time).
Basis: IRC §1031(a)(3)
Why you need a Qualified Intermediary (QI)
If you take even momentary possession of the sale proceeds, the deferral breaks at that instant. That’s why a third-party QI holds the proceeds and pays them directly toward the replacement purchase instead. Choosing your QI well is what makes or breaks the whole exchange.
Boot — the part that doesn’t get deferred
If you walk away with cash or take on less debt than before, that difference falls outside the deferral and gets taxed that year. This is called boot.
- Cash boot: if you don’t put the full sale proceeds into the replacement purchase and pocket the rest as cash, that leftover amount is taxed.
- Debt-relief boot: buy the replacement property with a smaller loan than the one you had, and the reduction counts as boot. Putting in more cash does not offset debt-relief boot — that’s a mistake people make constantly. They’re calculated separately.
A recent regulatory wrinkle
The IRS recently updated its Rev. Proc. guidance on relief procedures for when a QI goes bankrupt mid-exchange — a detail that can affect how the 45-day/180-day clock gets counted for an exchange already in progress. Worth tracking through a regulation-change alert if you’re mid-exchange.
Run the boot and deferral numbers on your own deal
Enter your sale price, basis, and loan balances, and get boot exposure, deferred gain, and the 45/180-day timeline all at once.
Open the 1031 Exchange calculator →(The calculator’s interface is Korean-only for now; the numbers and math work the same regardless.)
Related reading: Ebook series
※ This guide is general information, not tax or legal advice. Exchange structuring and QI selection vary by transaction — have a CPA/EA and a QI professional review your specific deal before you act.