How Long Do You Have to Complete a 1031 Exchange?

1031 Pros
Mar 24
4 min read

You have 180 days to complete a 1031 exchange. The first day is the day you sell your property, and the last is the day you complete the transaction on the new one.

The IRS is very strict about 1031 exchange deadlines, and they can’t be shifted without potential tax penalties. In this article, we’ll explain the time frames in detail and offer tips to help you complete your transaction on schedule.

What Is a 1031 Exchange?

A 1031 exchange is a related transaction involving two properties. The simplest version involves selling one property and purchasing a new one. That’s the type we’ll explain here.

A 1031 exchange is sometimes called a like-kind exchange. The name comes from the types of properties involved in these transactions. They must be investment properties (not primary residences) and similar enough to be considered like-kind.

Most investment properties are considered like-kind by the IRS. For example, you can sell a rental home and invest in a supermarket property, or you could sell an office building and invest in an apartment complex. However, you must meet IRS deadlines to achieve the potential benefits.

If you complete a 1031 exchange with the right properties and meet the required deadlines, any potential capital gains taxes are rolled into the new property. They won’t come due until you sell that property. If you don’t sell it, your heirs won’t be required to pay the taxes.

How Long Do You Have to Complete a 1031 Exchange? Step by Step

How does the 180-day deadline work in real time? Let’s break this time frame down into its component steps, so everything is crystal clear.

Day 1: Sell the Property

The first day of the required time frame is one in which you close on the sale of your original property. You’ve handed off the keys to the new owner, and the property is no longer considered yours. At this point, the clock starts ticking and your deadlines begin.

45 Days Later: Identify a New Property

Per IRS rules, you have 45 days from the date of the sale to identify the property you’ll purchase in the exchange. In other words, you have about six weeks, starting from the close date, to find something new to invest in.

180 Days Later: Complete the Transaction

Starting with the date you sold the property, you have 180 days to close on the purchase of the replacement property. Per IRS rules, you must actually take possession of the property, so the transaction can’t be in progress or almost complete. Instead, you must be 100% done with the process when this deadline arrives.

Tips to Help You Meet Your Deadlines

IRS rules are very strict, and they don’t allow investors to ask for extensions. If you miss even one of these deadlines, the potential tax benefits could disappear. You could be forced to pay capital gains on the sale of your original property.

Since the deadlines are so strict, it’s important to meet them. These tips may help:

1. Scout Your Market Before You Sell

Research suggests that it takes the average homeowner about 58 days to sell a home in 2024. This time frame is shorter than the one you’re required to meet per the IRS. However, time frames for commercial properties (like office parks) could be much longer.

You’re not required to wait until your original property sells to pick something new. Start scouting your opportunities as soon as you can, and ask a realtor for advice about what’s best for your situation. When your property sells, you’ll be ready to go.

2. Skip Long Negotiations

If you haggle for a good deal, your transaction might take too long. For example, protracted negotiations about the price could mean losing your sales window. So could asking for too many repairs.

Experts say that problems involving building code violations, safety issues, or structural defects are typically required by lenders. They must get fixed if you’re using a loan to pay for the purchase. However, many people ask their sellers to fix all sorts of other problems. This could cause significant delays, especially if the fixes take time.

Put your deadline first during negotiations, and keep your demands as reasonable as possible.

3. Understand Notification Rules

To meet the required deadlines, you must complete each step properly. One common mistake involves the identification of your new property.

IRS rules require buyers to identify their new property in writing and deliver it to the seller of the replacement property or the qualified intermediary you hire to help you with the transaction. If you don’t take this step properly, the IRS will consider this deadline missed. There is no wiggle room on this deadline. It’s fixed.

4. Get Expert Help

The IRS requires investors to use a qualified intermediary (QI) to help with a 1031 exchange. This person holds the profits from the sale of the property and releases them for the purchase. By holding the funds, the QI ensures that the investor doesn’t take possession of the money and make the transaction taxable.

While you need a QI, it’s critical to find the right one. A talented professional can ensure that you take every step properly and never miss a deadline.

Work With the Best

At 1031 Pros, we specialize in 1031 transactions. Whether you have just one or two properties or hundreds of them, we can help.

Our streamlined process ensures that you avoid costly capital gains taxes while building and improving your real estate portfolio. We are fully bonded and insured, and we’re a member of the FEA. We’d love to help you get started. Reach out to us today to learn more about how we can help you complete your 1031 exchange.