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1031 Exchange Timeline in Plain English

By Javier Brown, Commercial Real Estate Agent, MGR Real Estate · DRE #01755491

This guide is general information, not tax or legal advice. Every exchange is different, so work with a qualified intermediary and your CPA or tax attorney before you act.

A 1031 exchange lets an investor sell investment or business real estate and buy other investment real estate while deferring capital gains taxes, if the rules are followed. In the Inland Empire, it's common: owners sell an industrial building, a yard, or an apartment building and move into an NNN property, a different building, or a property closer to home.

The rules are strict, and the deadlines don't bend. Here's the timeline in plain English.

Before you list: plan the exchange

The best time to think about a 1031 is before you sell, not after you open escrow.

• Talk to your CPA about whether an exchange makes sense for you, and how much tax you'd defer.
• Choose a qualified intermediary (QI). The QI holds the sale money so you never touch it. If the money reaches your hands, the exchange can be lost.
• Think about the replacement property early. What do you want next: less management, more income, a different location? Start looking before your property sells, because the clock runs fast later.

Day 0: Your sale closes

The timeline starts on the day your relinquished property (the one you're selling) closes. The QI must be in place before that closing, and the sale proceeds go directly to the QI.

Days 1–45: Identify replacement properties

You have 45 calendar days from the close of your sale to identify, in writing, the properties you might buy. Weekends and holidays count. There's no extension for a late identification.

The identification must be signed and delivered as required, usually to your QI, and must clearly describe each property (such as an address or legal description).

There are limits on how many properties you can identify. The most common approach is the three-property rule: you can identify up to three properties of any value. Other rules exist for identifying more, but they come with value limits. Ask your QI which one fits.

Practical tip: identify backups. If your first choice falls through, you can only buy from what you identified.

Days 1–180: Close on the replacement property

You must close on the replacement property within 180 calendar days of your sale closing, or by your tax return due date for that year (including extensions) if that comes first. The 45-day and 180-day periods run at the same time, not one after the other.

What counts as "like-kind"

For real estate, "like-kind" is broad. Generally, real property held for investment or business use can be exchanged for other real property held for investment or business use. An industrial building can be exchanged for an apartment building, land, or an NNN retail property. Your home doesn't qualify, and neither does property held mainly for resale.

Deferring all of the tax: equal or greater

To defer all of the tax, investors generally aim to:

• Buy replacement property of equal or greater value than what they sold, and
• Reinvest all the net proceeds, and
• Replace any debt paid off with new debt or additional cash.

Any cash you keep, or a drop in debt that isn't replaced, may be taxable ("boot"). Your CPA can run the numbers.

Common mistakes

• Starting too late. Finding a replacement property in 45 days is hard in a competitive market. Start the search early.
• Touching the money. Proceeds must go to the QI.
• Only identifying one property. If it falls through, you may have no options left.
• Changing the ownership name. In general, the same taxpayer that sold should buy. Talk to your advisor before changing entities.
• Forgetting financing time. If you need a loan, lenders need time for appraisal and approval within the 180 days.

Inland Empire replacement ideas

Owners selling here often look at:

• NNN properties with a single tenant handling most expenses. See my NNN investments page and the guide on what drives NNN value.
• Industrial buildings, either smaller multi-tenant or a single tenant.
• Apartments, for owners comfortable with more management.
• Land or yards, for owners with longer-term plans.

My 1031 exchange page covers how I help on both sides: selling your current property and finding the next one.

Frequently Asked Questions

Can I extend the 45-day or 180-day deadline?

Generally no. Only rare situations, such as federally declared disasters, may extend them. Plan as if there's no extension.

Can I do a 1031 on my house?

Generally no. 1031 exchanges are for real property held for investment or business use. Ask your tax advisor about your situation.

Can I buy the replacement property before selling?

A "reverse exchange" is possible but more complex and costly. Ask your QI and CPA.

Do I need a qualified intermediary?

For a standard delayed exchange, yes. The QI holds the money and the paperwork that make the exchange work.