What qualifies
- Real property held for investment or for use in a business, exchanged for other such real property. Since 2018, only real property qualifies.
- Your personal residence and property held primarily for sale (such as fix-and-flip inventory) don't qualify.
The deadlines
- 45 days from the sale to identify replacement property in writing.
- 180 days from the sale (or your tax return due date, if earlier) to close on the replacement.
- The proceeds must be held by a qualified intermediary. If you receive the cash, the exchange fails.
Boot and partial exchanges
Cash you take out, or a reduction in debt that isn't replaced, is "boot" and is taxable. To defer all of the gain, you generally need to buy property of equal or greater value and reinvest all the cash.
Other rules to know
- Exchanges with related parties generally require both parties to hold the properties for two years.
- The exchange is reported on Form 8824, and your basis carries over into the new property.
- New Jersey and New York generally follow the federal treatment, but nonresident sellers face state filing requirements at closing.
Frequently asked questions
What are the 1031 exchange deadlines?
You must identify replacement property within 45 days of the sale and close on it within 180 days (or by your tax return due date, if earlier).
Can I do a 1031 exchange on my house?
Not on your personal residence. 1031 exchanges apply to real property held for investment or business use.
What is boot in a 1031 exchange?
Cash or other value you receive, including debt relief that isn't replaced. Boot is taxable even when the rest of the exchange qualifies.
Do I need a qualified intermediary?
Yes, in practice. If you take control of the sale proceeds, the exchange generally fails.