Updated June 17, 2026
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A fully tax-deferred 1031 exchange requires satisfying rules around property type, holding intent, value, debt, equity, and timing, all at once. A qualified intermediary must hold the proceeds throughout. Failing any single requirement creates a partial or total taxable event, sometimes retroactively discovered at audit.
Property requirements
- Both the relinquished and replacement properties must be real property located in the United States (or both outside the US).
- Both must be held for investment or productive use in a trade or business.
- The replacement property must be "like-kind" to the relinquished property. For real estate, this is interpreted broadly: land, residential rental, commercial, or industrial property all qualify as like-kind to each other.
- Primary residences and vacation homes used primarily for personal enjoyment do not qualify.
Value and equity requirements (to avoid boot)
- The replacement property's purchase price must equal or exceed the relinquished property's net sale price.
- All net equity must be reinvested. Taking any cash out creates "cash boot," which is taxable.
- The replacement property's mortgage must equal or exceed the mortgage paid off on the relinquished property, or you must cover any shortfall with additional cash. Receiving net mortgage relief is "debt boot" and is taxable.
Timeline requirements
- Identify replacement property in writing within 45 calendar days of the relinquished sale.
- Close on the replacement property within 180 calendar days of the relinquished sale (or your tax return due date, if earlier).
Qualified intermediary requirement
You cannot receive the sale proceeds at any point, even briefly. A QI, also called an exchange facilitator or accommodator, must hold the funds from the relinquished closing and deploy them to fund the replacement purchase. If you take constructive receipt of the money before the exchange closes, the full gain becomes taxable immediately. Your attorney, CPA, real estate agent, and close family members are all disqualified under IRS rules, regardless of their qualifications otherwise.
Same taxpayer rule
The entity that sells the relinquished property must be the same entity that buys the replacement. An individual cannot sell personally and then take title through a newly formed LLC without careful advance planning. The rule has documented nuances for married couples, partnerships, and Delaware statutory trusts. If your ownership structure is anything other than a single individual or simple joint ownership, consult a tax attorney before proceeding.
This article is for educational purposes only and is not tax or legal advice. Rules and figures are current as of the date above. Consult a qualified intermediary and a tax professional before structuring any exchange.
See exactly what you would defer
Enter your sale price, adjusted basis, and mortgage payoff to model deferred gain, taxable boot, and cash available for reinvestment.