1031 Exchange Planning: Navigating Strict Deadlines and Rules

If you're actively planning a 1031 exchange, understanding the 45-day identification and 180-day closing deadlines is critical--there are no extensions.

The deadlines are absolute. You have 45 days from the sale closing to identify up to three replacement properties in writing, and 180 days to close on at least one. These deadlines cannot be extended, even if they fall on weekends or holidays. Missing either deadline makes the entire exchange taxable.

You need a qualified intermediary. The exchange funds cannot touch your hands or your bank account at any point. A third-party qualified intermediary holds the proceeds between the sale and purchase. Your CPA should help you select and coordinate with one before you list the property.

Watch for boot. If the replacement property costs less than what you sold, or you receive cash or non-like-kind property, the difference -- called "boot" -- is taxable. Mortgage relief also counts as boot.

The tradeoff: A 1031 exchange defers the tax but carries over your low basis into the new property, meaning a larger gain whenever you eventually sell without exchanging. The compliance is unforgiving -- one missed deadline and the entire deferral fails.