Getting started
How to do a 1031 exchange, step by step
A 1031 exchange lets you sell an investment property and reinvest the proceeds into another one while deferring the tax. The mechanics are strict but the order is simple. Here is the whole process.
1. Engage a Qualified Intermediary before you close
This is the step people get wrong. You must have a QI in place before your sale closes, because you cannot touch the proceeds. If the money hits your bank account, the exchange is dead. Set up the QI while your property is under contract.
2. Sell your property
At closing, the sale proceeds go directly to the QI, who holds them in escrow. You never take receipt. The day this closes is day 0 of your 45-day and 180-day clocks.
3. Identify replacement property within 45 days
Within 45 calendar days, deliver a written, signed identification of your replacement property to your QI. Most people identify more than one option in case a deal falls through.
4. Close within 180 days
Acquire the replacement property within 180 days of the sale. The QI uses your held proceeds to buy it and transfers it to you. To fully defer tax, buy equal or greater value, reinvest all your proceeds, and replace any debt you paid off.
5. Report it on your taxes
Report the exchange on IRS Form 8824 with the tax return for the year of the sale. Your CPA handles this; the deferred gain carries into the basis of your new property.
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Frequently asked questions
- Can I do a 1031 exchange myself?
- Not the intermediary part. IRS safe-harbor rules require an independent Qualified Intermediary to hold the funds; you cannot act as your own, and neither can your agent, attorney, or CPA from the prior two years.
- What if I already sold and took the money?
- Once you take actual or constructive receipt of the proceeds, a standard 1031 is generally no longer available. Talk to a CPA or tax attorney right away about your options.
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Educational information only, not tax, legal, or investment advice. 1031 rules and deadlines are strict and can change, so confirm with the IRS and your own CPA or attorney before acting. How we source content.