DIRECT ANSWER
What to know first
For a typical deferred Section 1031 exchange, replacement real property generally must be identified in a signed writing within 45 days after transferring the relinquished property. The replacement property generally must be received by the earlier of 180 days after that transfer or the due date of the federal return for the transfer year, including extensions. These periods run concurrently, are not automatically extended for weekends, and require planning before the sale closes.
The two deadlines begin with the transfer
| Deadline | General rule | Planning implication |
|---|---|---|
| 45-day identification period | Identify replacement property in the required signed writing no later than 45 days after transferring the relinquished property. | Start the property search and identification process before closing; the period is not added after the 180-day period. |
| 180-day exchange period | Receive the replacement property by the earlier of 180 days after the transfer or the federal return due date, including extensions. | A return extension may be relevant when the normal due date would arrive before day 180. |
| Form 8824 reporting | Report the exchange on the federal return for the year in which the relinquished property was transferred. | Keep the exchange agreement, identification, closing records, basis schedule, and dates together. |
Coordinate the qualified intermediary before closing
A deferred exchange must be an exchange rather than a sale followed by an ordinary purchase. Actual or constructive receipt of sale proceeds can cause the transaction to be treated as a taxable sale.
A qualified intermediary is commonly engaged before the relinquished property transfers so the exchange documents and funds can be handled under the applicable safe-harbor structure. Tavella CPA Group does not act as a qualified intermediary or provide legal documents; coordinate those roles with qualified exchange and legal professionals.
The identification must be timely and specific
The replacement property generally must be designated in a signed writing and delivered within the identification period to a permitted person involved in the exchange. Real property should be described clearly, such as by street address or legal description.
Property received before the 45-day period ends is generally treated as identified. Changing an identification after the deadline can jeopardize the exchange.
Multiple-property identification rules
These rules contain detailed valuation, receipt, and incidental-property requirements. Do not select a rule after the identification period has already expired.
- Three-property rule: identify up to three properties without regard to their total fair market value
- 200% rule: identify any number of properties when their total fair market value does not exceed 200% of the total fair market value of the relinquished property
- 95% rule: a narrow alternative can apply when more property was identified than the other limits permit and qualifying property received meets the 95% fair-market-value threshold
Only qualifying real property can receive Section 1031 treatment
Current Section 1031 treatment generally applies to real property held for productive use in a trade or business or for investment. Property held primarily for sale, ordinary personal-use property, and personal or intangible property generally do not qualify.
U.S. real property is not like-kind to real property outside the United States. Ownership structure, entity changes, related parties, tenancy-in-common interests, and mixed personal or business use require individual review.
Receiving cash, debt relief, or other property can trigger gain
An exchange can be only partially tax deferred. Cash, non-like-kind property, net debt relief, or other consideration can create recognized gain under the applicable rules even when qualifying replacement real property is also received.
Trading down in value or equity is not the only test. Compare the complete consideration, liabilities, exchange expenses, adjusted basis, and property received before estimating recognized gain.
The replacement property must match the identification
The property received by the end of the exchange period generally must be substantially the same as the property identified. Construction or improvement exchanges, reverse exchanges, and property that changes between identification and receipt require specialized documentation and advice.
Records to keep for Form 8824 and the replacement basis
- Relinquished-property purchase records, improvements, and full depreciation schedules
- Exchange agreement, qualified-intermediary agreement, and fund statements
- Signed identification notice with delivery proof and exact date
- Relinquished and replacement closing statements
- Fair-market-value support for every identified and received property
- Debt, cash, exchange expenses, and non-like-kind property details
- Related-party information and prior exchanges
- Calculation of recognized gain and replacement-property basis
APPLY THE GUIDE
Related tools and service paths
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Multi-state tax-return guide
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AUTHOR
Stefano Tavella, CPA
Stefano Tavella, CPA leads Tavella CPA Group, a cloud-based CPA firm serving individuals and small businesses with tax preparation, planning, notice assistance, and related services.
PRIMARY GUIDANCE