Identify replacements before day 45

A section 1031 exchange (named for its section of the U.S. tax code) lets an owner defer capital-gains tax when selling investment or business real property, by reinvesting the proceeds into other like-kind real property under strict rules and deadlines. The tax is deferred, not forgiven — the gain carries into the replacement property.

Real property held for investment or productive use in a trade or business generally qualifies — an industrial building, an office, a retail center, land. A primary residence does not, and since the 2018 tax-law changes, personal property (equipment, vehicles, franchises) no longer qualifies at all.

A qualified intermediary (QI) is an independent party who holds the sale proceeds between your sale and your purchase. If you receive the proceeds yourself — even for a day — the exchange generally fails and the gain becomes taxable. The QI must be engaged before your sale closes; there is no fixing it afterward.

No. This page is a worksheet so you can line up the buildings and the dates. The written identification has to be a signed list delivered to your qualified intermediary by day 45. CompNinja does not send anything to a QI, and this worksheet is not that list.

The exchange fails and the deferred gain generally becomes taxable. Both deadlines are counted in calendar days from the closing of your sale, and they are not extended for weekends or holidays. The 180-day period can also end earlier if your tax-return due date arrives first and you do not extend.

Any non-like-kind value you receive in the exchange — leftover cash, or debt on the old property that is not replaced on the new one. Boot does not sink the exchange, but it is taxable up to your gain. Trading down in price or equity usually creates boot.

To defer the full gain, the replacement property generally needs to be of equal or greater value and you need to reinvest all the equity. Reinvesting less still works as a partial exchange, with the difference taxed as boot.

On IRS Form 8824, filed with the federal return for the year of the sale. Your tax preparer handles the mechanics; what they need from you is the timeline, the QI paperwork, and the closing statements from both legs.

Verify five things before your sale closes: your funds will sit in a segregated qualified escrow or trust account in your name, never commingled; a fidelity bond and errors-and-omissions insurance are in force, with certificates you can see; the QI is registered in states that regulate exchange facilitators, if yours does; they are independent of you (not your own agent, attorney, or accountant from the last two years); and the fees are in writing, including who keeps the interest earned on your money while they hold it. Your closing attorney, title officer, and CPA all see intermediaries' work firsthand and can point you to established ones.

A straightforward delayed exchange typically runs from several hundred dollars to around $1,500 in stated fees, and many intermediaries also keep some or all of the interest earned on your escrowed funds while they hold them — ask about both numbers and get them in writing. Reverse and improvement exchanges are specialist work and cost several times more.

Generally not: the rules disqualify anyone who has been your employee, attorney, accountant, investment banker, or real estate agent within the two years before your sale. The intermediary has to be independent — your attorney and CPA still advise you alongside them, which is exactly the arrangement you want.