Property That May Qualify
- Single-family rental homes
- Duplexes and apartment buildings
- Office and retail properties
- Industrial and warehouse buildings
- Farmland and ranchland
- Vacant land held for investment
- Other qualifying business-use real estate
Purvis & Company Exchange
1031 Exchange Rules, Requirements & Deadlines
Thinking about selling an investment property and buying another one? A 1031 exchange may allow you to defer taxes on some or all of the gain. But there are important rules to follow.
This guide explains the most common requirements in plain language, including what property qualifies, how long you have to buy, and how much you may need to reinvest.
This is a general guide, not a review of your individual tax situation. Always involve your CPA or tax advisor.
What Qualifies for a 1031 Exchange?
Most qualifying exchanges involve selling real estate held for investment or business use and buying other qualifying real estate.
Property That Generally Does Not Qualify
- Your primary residence
- A home held mainly for personal vacations
- Property held primarily to flip or resell
- Ordinary stocks and bonds
- Partnership interests
- Personal property such as vehicles or equipment
Mixed-use properties, vacation rentals, development property, and properties with changing uses may require closer review. How you actually use and hold the property matters.
Six Basic Rules to Know
If you're considering a traditional forward exchange, these are the main questions to address before closing.
Sell Investment Property
The property you're selling generally needs to be held for investment or used in a business.
Buy Qualifying Real Estate
The replacement property must also be held for investment or business use. It doesn't have to be the same type of building.
Use the Same Taxpayer
The taxpayer selling the first property generally must be the same taxpayer buying the next one.
Arrange the Exchange Before Closing
For a typical delayed exchange, the Qualified Intermediary and exchange paperwork should be in place before the sale closes.
Meet the Deadlines
Generally, identify replacement property within 45 days and complete the exchange within the applicable 180-day period.
Plan Your Reinvestment
How much you reinvest, the debt involved, and any cash you keep can affect how much gain is deferred.
How Long Do You Have?
For a traditional forward (delayed) exchange, two important deadlines generally start when the property being sold changes hands.
Identify Your Next Property
You generally have 45 calendar days after selling your investment property to identify potential replacement property in writing.
Complete the Purchase
You generally must acquire the replacement property within 180 calendar days of the original sale, or by your applicable tax return due date, including extensions, if that comes first.
Important: These deadlines run at the same time. You do not get 45 days plus another 180 days. Certain IRS disaster relief may change deadlines in qualifying situations.
How Many Replacement Properties Can You Identify?
You aren't always limited to identifying one property. There are three common rules used to determine how many replacement properties you can list during the 45-day identification period.
Identify Up to 3 Properties
You can identify up to three potential replacement properties, regardless of their combined value.
Example: You sell an investment property and identify three possible replacement properties. You may purchase one or more of them within the exchange period.
Identify More Than 3
You can identify more than three properties if their total market value does not exceed 200% of the total market value of the properties you sold.
Example: You sell a property valued at $500,000. You may identify several properties with a combined value of up to $1 million.
Identify More and Buy Nearly All
You may identify properties beyond the other limits if you actually purchase at least 95% of the total market value of everything you identify.
Example: You identify properties worth $2 million in total. To meet this rule, you would need to purchase at least $1.9 million of those properties.
Your property identification needs to be properly documented and delivered within the deadline. These examples simplify detailed IRS rules, so have the Qualified Intermediary review your identification.
How Much Money Do You Have to Reinvest?
You do not necessarily have to reinvest everything to complete an exchange. But to pursue full tax deferral, investors generally plan to buy replacement property of equal or greater value, reinvest all available exchange proceeds, and appropriately address any debt.
What Is "Boot"?
In a 1031 exchange, "boot" is the common term for cash or other value you receive that does not qualify as like-kind property.
For example, keeping some of the sale proceeds instead of using them toward replacement property may create taxable gain.
Debt changes can also affect the amount of gain recognized, although the actual calculation depends on the full transaction.
Your CPA should review the expected sale price, purchase price, closing costs, loan balances, and exchange proceeds.
The Same Taxpayer Rule: Pay Attention to Ownership
The same taxpayer who sells the original property generally must be the one who buys the replacement property.
When Ownership Is Straightforward
If an individual sells a rental property and buys another rental property in the same individual's name, identifying the taxpayer is usually straightforward.
When an LLC or Trust Is Involved
The name on the deed and the person or entity treated as the taxpayer aren't always the same thing. Certain single-member LLCs and grantor trusts may be treated as the same taxpayer for federal tax purposes.
If you plan to change ownership, add or remove partners, transfer property into an LLC, or purchase in a different entity, discuss it before signing or closing.
Other Situations That Need Extra Planning
Some real estate transactions are more complicated than a simple rental-property exchange.
Related-Party Transactions
Buying from or selling to family members or related businesses may trigger additional rules. Tell your exchange team and CPA about any relationship between the parties.
Vacation and Mixed-Use Property
Properties used partly as rentals and partly for personal vacations may require careful review of rental activity, personal use, and ownership history.
Property Flips and Development
Real estate held primarily for resale generally does not qualify. Land or development property held for genuine investment or business use needs a fact-specific review.
Buying Before Selling
If you need to buy the replacement property first, a reverse exchange may be worth exploring. It requires a different arrangement from a typical forward exchange.
Tax Year and Return Deadlines
If an exchange continues into the next tax year, the due date of the taxpayer's income tax return can affect how much time remains. Ask your CPA whether a filing extension is appropriate.
Why Do You Need a Qualified Intermediary?
In a traditional delayed exchange, a Qualified Intermediary helps make the sale and replacement purchase part of a qualifying exchange, rather than two unrelated transactions.
What the QI Does
- Prepares exchange agreements and documents
- Coordinates with closing agents
- Administers exchange proceeds under the agreement
- Supports the exchange timeline and process
- Coordinates qualifying replacement purchases
Your Purvis & Company Exchange Team
Purvis & Company Exchange helps clients initiate the exchange process and coordinate the information needed to get started.
Purvis & Company 1031, LLC serves as the Qualified Intermediary under its exchange agreements.
What Should You Have Ready to Start?
You can begin with basic information about the property and your planned sale. Additional documents can be gathered as needed.
Property and Closing Details
- Property address
- Expected sale price
- Estimated closing date
- Signed sale contract, if available
- Title commitment, if available
- Closing agent contact information
Ownership and Exchange Details
- Owner or entity name
- Authorized signer contact information
- General plans for replacement property
- Ownership and entity details
- LLC, corporate, partnership, or trust documents if requested
Do not send sensitive tax identification numbers, banking details, or confidential documents by ordinary email. Ask for an approved secure submission method.
Frequently Asked Questions About 1031 Exchange Rules
Do I have to exchange into the same type of property?
Not necessarily. Qualifying U.S. investment real estate can generally be exchanged for other qualifying U.S. investment or business-use real estate, even if the property types differ.
What happens if I miss the 45-day identification deadline?
Missing the deadline can cause a delayed exchange to fail. Relief is available only in limited qualifying situations, such as certain IRS-designated disaster circumstances. Do not assume an extension will be available.
Can I identify more than three replacement properties?
Yes, potentially. The 200% rule and 95% rule provide alternatives to the standard three-property identification rule. Each has specific requirements.
Do I have to buy a more expensive property?
Not necessarily. You may still be able to complete a partial exchange with a lower-value purchase, but some gain may be taxable. For full deferral, investors generally aim to reinvest all net proceeds and acquire equal-or-greater replacement value, with debt appropriately addressed.
Can I keep some cash from the sale?
Potentially, yes. Cash you receive can create taxable gain and may reduce the benefit of the exchange. Discuss the amount with your CPA before closing.
Can I purchase the replacement property through an LLC?
Sometimes. The result depends on how the LLC is treated for federal tax purposes and whether the same taxpayer remains involved. Ask your CPA before changing ownership.
Can I do a 1031 exchange after the sale has already closed?
If you've already received the sale proceeds, a typical delayed exchange usually cannot be created afterward. Contact an exchange professional before your sale closes.
What if my exchange crosses into the next year?
An exchange can cross calendar years. However, the due date of your income tax return may shorten the normal 180-day period. Your CPA can advise whether a return extension is needed.
Does a 1031 exchange eliminate taxes forever?
No. A 1031 exchange generally defers eligible gain; it does not automatically eliminate the underlying tax. Future sales and other events may result in taxable gain.
How do I ask about my specific situation?
Complete our online exchange inquiry, email exchange@purvisco.com, or schedule a consultation. Your tax and legal advisors should review your specific eligibility and tax consequences.
Have Questions About Your 1031 Exchange?
Whether you're preparing to sell investment property or already have a sale under contract, we can help you start the exchange process and coordinate the next steps.
Questions? Email exchange@purvisco.com
Qualified Intermediary services are provided by Purvis & Company 1031, LLC, a wholly owned subsidiary of Accruit LLC. Purvis & Company Exchange is the customer-facing service and is not itself the Qualified Intermediary. Information provided on this page is for general educational purposes only and is not tax, legal, or investment advice. Eligibility, tax treatment, and deadlines depend on the facts of each transaction. Consult your independent tax and legal advisors before proceeding.
