TOP 10 1031 EXCHANGE RULES

1. Like‑Kind Real Property Only

Section 1031 applies only to exchanges of real property, land and anything permanently affixed to it. Real property located in the United States is not like‑kind to property outside the U.S., and personal property (furniture, vehicles) doesn’t qualify (irs.gov.) Intangible assets such as stocks, bonds, notes, partnership interests or certificates of trust are never treated as real property (irs.gov.) To qualify, both the relinquished and replacement properties must be real estate of the same nature or character (irs.gov.)

2. Investment or Business Use Only

The property you sell and the one you buy must be held for investment or productive use in a trade or business, not for personal enjoyment or flipping. Primary residences, dealer property held primarily for sale, and securities are excluded (irs.gov, 1031exchangerules.ai) Vacation homes may qualify only if rented to others and personal use is minimal; otherwise, the gain is taxable.

3. Use a Qualified Intermediary (QI) and Avoid Constructive Receipt

You cannot touch or control the sale proceeds. Instead, engage a Qualified Intermediary; an independent party (like us) who enters into a written agreement, receives the relinquished property, holds the funds in a segregated account and acquires the replacement property (law.cornell.edu.) Funds placed in a pooled or corporate account without proper restrictions can trigger “constructive receipt,” making the sale taxable. EZ 1031 Exchange’s fiduciary standard emphasizes bonded, FDIC‑insured accounts and automated deadline tracking (1031exchangerules.ai.)

4. Write and Deliver Your Identifications by Day 45

After transferring your old property, you have 45 days to identify your replacement in writing. The identification must unambiguously describe the property (street address or legal description) and be delivered to the person obligated to transfer it (usually the QI) (irs.gov). You may identify up to three properties (Three‑Property Rule), any number of properties whose aggregate value doesn’t exceed 200% of what you sold (200% Rule), or more than that if you acquire 95% of the total value (95% Rule) (law.cornell.edu). If you receive the replacement property within 45 days, the identification requirement is automatically satisfied (irs.gov).

5. Close on the Replacement Property by Day 180

The “exchange period” ends at midnight on the earlier of the 180th day after you transfer your relinquished property or the due date of your tax return (including extensions) (law.cornell.eduirs.gov). Missing this deadline turns your exchange into a taxable sale, even if the delay isn’t your fault. Plan closings carefully and coordinate with your QI and lenders well ahead of day 180.

6. Reinvest All Net Proceeds and Maintain Equal or Greater Debt

To defer tax completely, reinvest all net proceeds from the sale and acquire a replacement property of equal or greater value with equal or greater debt. Receiving cash or other non‑like‑kind property, called “boot”, creates taxable gain (irs.gov. ) EZ 1031’s guidance notes that reinvesting 100% of net sales proceeds and acquiring equal or greater debt are essential for full deferral (1031exchangerules.ai). Partial reinvestment or debt reduction will trigger tax on the difference (1031exchangerules.ai).

7. Maintain the Same Taxpayer/Vesting

The same taxpayer (or entity) that sells the relinquished property must buy the replacement property. Title should match, for example, if an individual sells, that individual (or their disregarded single‑member LLC or revocable trust) must acquire the new property. Changing from individual to partnership or from one entity to another can invalidate the exchange; consult your attorney before restructuring ownership.

8. Avoid Related‑Party Pitfalls

Section 1031 discourages “swap‑and‑sell” transactions between related parties. If you exchange with a related party (family member or entity controlled by you) and either party disposes of the property within 2 years, the deferred gain becomes taxable (irs.gov). Related parties include spouses, ancestors, lineal descendants and entities where you own more than 50% (irs.gov). Exceptions apply for involuntary conversions and certain tax‑free reorganizations, but you should generally avoid related‑party exchanges unless you plan to hold the properties long term.

9. Report the Exchange on Form 8824

You must file Form 8824, Like‑Kind Exchanges, with your tax return for any year in which you transfer property in a 1031 exchange (irs.gov). The form reports the properties exchanged, calculates deferred and recognized gain, and must be filed again for the two years following a related‑party exchange. EZ 1031 provides a CPA‑ready packet that includes Form 8824 guidance (1031exchangerules.ai), but ultimate responsibility for accurate reporting rests with you and your CPA.

10. Reverse and Improvement Exchanges Require a Parking Arrangement

If you must acquire replacement property before selling your relinquished property or wish to build improvements, you can use a Qualified Exchange Accommodation Arrangement (QEAA). Under Revenue Procedure 2000‑37, the replacement or relinquished property may be “parked” with an Exchange Accommodation Titleholder; you must identify the property within 45 days and complete the exchange within 180 days (irs.gov). Revenue Procedure 2004‑51 modified the safe harbor, prohibiting parking arrangements on property you owned within the 180 days prior to transfer. These arrangements are complex, so consult experienced advisers before proceeding.