The 1031 Exchange Rules

Rule 1: Both properties must qualify

Both the property you sell and the property you buy must be U.S. real estate held for investment or business use. Rentals, commercial buildings, farmland, and raw land all qualify, and they're all "like-kind" to each other. Your own home doesn't qualify, and neither does property bought mainly to flip. Intent matters: the IRS looks at how you actually used the property, and most advisors want to see meaningful rental history on both sides of the exchange.

Rule 2: Never touch the money

From the moment your sale closes, the proceeds must be held by a qualified intermediary — a neutral third party you hire before closing. If the money touches your bank account, even briefly, even by a title company's mistake, the exchange fails and the full tax is due. This is the single most common way exchanges die, because it must be set up before your sale closes; there's no fixing it afterward.

Rule 3: Hit both deadlines

You have 45 calendar days from your sale closing to identify replacement property in writing, following the identification rules, and 180 calendar days (or your tax filing deadline, whichever comes first) to complete the purchase. Weekends and holidays count. There are no extensions. Calculate your exact dates here.

Rule 4: Trade equal or up — on three measures

To postpone all the tax, the replacement side must match or exceed the sale side in three ways:

• Price: buy for at least your net selling price (sale price minus selling costs).
• Equity: put every dollar of your sale cash into the new property.
• Debt: take on at least as much mortgage as you paid off — or make up the gap with fresh cash from outside the exchange.

Fall short on any measure and the shortfall is boot, taxed now. A partial exchange is still valid — you just pay tax on the part you kept. The boot calculator shows the cost.

Rule 5: Same taxpayer on both sides

The name on the deed of the new property must match the taxpayer who sold the old one. If your LLC sold the property, your LLC buys the replacement — not you personally, and not a different entity. Married couples, single-member LLCs, and revocable living trusts usually count as the same taxpayer, but partnerships and multi-member LLCs get complicated fast — see LLCs and partnerships.

Rule 6: Follow the paperwork

The exchange must be documented as an exchange: an exchange agreement with your intermediary signed before closing, written identification within 45 days, and Form 8824 filed with your tax return for the year of the sale. Your intermediary prepares most of this; the form is yours (or your tax preparer's) to file.