Section 1031
What a like-kind exchange is
If you sell real property you held for business or investment and buy other real property to hold for business or investment, you can defer the tax on the gain — as long as the sale money never comes to you and the deadlines are met. Since 2018 this applies to real property only. U.S. property for U.S. property.
IRC §1031(a)(1); IRS like-kind exchange real estate tax tips.
"Like-kind" is broad for real estate: a rental house for a duplex, a lot for a warehouse, an apartment building for a single-family rental. Your own home does not qualify; property held mainly for sale (flips, inventory) does not qualify.
The two clocks
45 days to identify. 180 days to close. Both start the day you sell.
- Identification period — ends at midnight on the 45th day after the day you transfer the property you sold. Your written identification must be in your Qualified Intermediary's hands by then.
- Exchange period — ends at midnight on the earlier of the 180th day after transfer, or the due date (including extensions) of your tax return for the year you sold. Close after roughly mid-October and the return due date can arrive before day 180 — the calculator flags it; ask your CPA about filing an extension before the due date.
- Calendar days. Weekends and holidays do not extend either period. If day 45 is a Sunday, the identification is due that Sunday.
- Federally declared disasters can extend deadlines. Ask your QI whether one applies to you.
IRC §1031(a)(3)(A)–(B); Treas. Reg. §1.1031(k)-1(b)(2); Rev. Proc. 2018-58.
Run my dates on the calculator
Identification
How many properties can go on the list
The list must name the property clearly — a street address or legal description — in a signed writing delivered to your QI by day 45. You can name more than one. The regulation gives three ways to keep the list valid:
- Three-property rule — up to three properties, any value.
- 200% rule — any number of properties, as long as their total fair market value is not more than 200% of what you sold.
- 95% rule — more than three and over 200%, but only if you actually close on at least 95% of the value you listed.
You can swap names on the list until day 45. After day 45 the list is the list. Which rule to use, and what goes on it, is your QI's and CPA's call.
Treas. Reg. §1.1031(k)-1(c)(4).
Boot
The part that gets taxed
Anything you walk away with that is not like-kind property is "boot," and gain is recognized up to the amount of it. Two kinds show up in almost every exchange:
- Cash boot — exchange proceeds your QI hands back to you because you bought for less than you netted.
- Mortgage boot — old debt paid off that is not replaced by new debt on the replacement, or by cash you add. Debt relief counts as cash received; it can be offset by new debt or by cash you pay in.
The plain-English rule: trade equal or up — in price, in equity, and in debt — or bring cash to close the gap. A loss is not recognized in an exchange either.
IRC §1031(b)–(c); Treas. Reg. §1.1031(d)-2; §1.1031(k)-1(j)(2).
See the boot on my numbers
The Qualified Intermediary
Who holds the money — and why it is not us
The regulation's safe harbor puts a Qualified Intermediary between you and the sale proceeds. The QI is a neutral company, engaged before your sale closes, that receives the money, holds it, and pays it to the seller of the replacement. If you or your agent touch the proceeds — even for a day — the exchange can fail. Your QI is also who receives your identification notice.
Trust Partner Holdings LLC is not a Qualified Intermediary. We are a buyer and seller of real property. We never hold your proceeds, never prepare your identification, and never give tax or legal advice. When you buy from us, your QI sends the funds to the title company and the deed comes to you. That is the whole relationship.
Treas. Reg. §1.1031(k)-1(g)(4).
Reverse exchanges
Buying first, selling second — ask your QI
Sometimes the right replacement shows up before your sale closes. The IRS provides a safe harbor for that (rules the IRS has said it will honor if you follow them): an exchange accommodation titleholder — a neutral third party that holds the deed for you — parks title to one of the properties for up to 180 days while the sale catches up. It costs more and has its own paperwork. Whether it fits you is a question for your Qualified Intermediary, and we will work inside whatever structure they set.
Rev. Proc. 2000-37, as modified by Rev. Proc. 2004-51.
Reporting
Form 8824
Your CPA reports the exchange on IRS Form 8824 with your return for the year you sold. It carries the dates, the identification, the boot, the recognized and deferred gain, and your new basis in the replacement. The deferral estimator on the home page is built around the same lines, so the numbers you bring your CPA are the ones they need.
IRS Form 8824 and instructions.
Where we fit
What we are, and are not
- We buy and hold whole single-family homes in Lorain County, Ohio, for our own account.
- To an exchange buyer we sell real property — a deed, not a fund, DST (Delaware Statutory Trust — a pooled interest), or fractional share. Nothing here is a security.
- Income is quoted only as the rent being paid today, verified, on the replacement sheet you ask for. No projections of any kind — no pro forma, no projected yields, no cap rates.
- We do not pay referral fees for investor introductions.
- We are not a Qualified Intermediary, a CPA, or a law firm. We work with yours.
- Where these homes come from: we buy directly from homeowners who need to sell fast, evaluating every house to hold ourselves first. When one doesn't fit our own hold criteria, it becomes replacement property for an exchange buyer instead. See how we buy.
Sources
Read the rules yourself