1031 exchange rules: 45-day and 180-day deadlines

Key takeaways

• The gain is deferred, and basis carries to the replacement.
• Identify within 45 days, and receive the replacement within 180 days or by the return due date if earlier.
• A cheaper replacement can be taxed this year. A $0 replacement field is a full rollover.

What a 1031 exchange is

A 1031 exchange swaps real property held for investment, or for use in a trade or business, for like-kind real property. The IRS like-kind page says you are not required to recognize gain or loss under Section 1031, and property held primarily for sale does not qualify.

The tax is deferred, not erased

Deferral postpones the gain. It does not erase it, and basis carries into the replacement, so a later taxable sale can still be taxed. A full rollover shows no tax this year, and it does not cancel tax later. If you also receive money or property that is not like-kind, you must recognize gain to that extent, and you cannot recognize a loss.

Which property qualifies

The property has to be real property held for investment or for business use, not property held primarily for sale. The like-kind page says Section 1031 now applies only to real property, so machinery, vehicles, artwork, collectibles, and patents generally do not qualify after 2017. The calculator allows the planning path on investment and mixed-use real estate only.

What like-kind means

Like-kind here means real property for real property. Publication 544 says real property in the United States and real property outside the United States are not like-kind, so an exchange of foreign real property for United States real property recognizes gain or loss. The calculator does not test location or property class beyond the property-type field.

A home does not qualify

A primary residence does not qualify. Revenue Procedure 2008-16 cites the rule that Section 1031 does not apply to property used solely as a personal residence. Use the Section 121 guide for a main home. Mixed-use can use the planning path, with the limit the tool already prints. This calculator does not combine a home exclusion and an exchange into one return.

45 days to identify and 180 days to close

The Form 8824 instructions say you must identify the replacement within 45 days after the transfer, and receive it within 180 days or by the return due date, including extensions, whichever is earlier. The strip marks day 0, day 45, and day 180, and the calculator does not run either clock. Publication 544 lets you identify three properties, or any number whose total value is not more than double the property you give up, and a larger list still works when what you receive is at least 95 percent of the value you identified.

45 days and 180 days

1. Day 0, close on the property you give up
2. Day 45, identify the replacement
3. Day 180, receive the replacement

The return due date, including extensions, can come before day 180. The calculator does not count these days.

The qualified intermediary holds the proceeds

In a deferred exchange the proceeds go to a qualified intermediary, and the Form 8824 instructions treat that transfer and later receipt as the exchange. If you receive the money before the replacement, Publication 544 says it is not a deferred exchange. This calculator does not hold funds or model a fee.

Boot is the part that is taxed now

Boot is money or other property that is not like-kind, and the Form 8824 instructions also count net debt relief, including mortgages the other party assumes, after subtracting debt you take on, cash you pay, and other property you give. If the buyer takes over a $200,000 mortgage and the replacement carries only $150,000 of debt, that $50,000 gap is boot unless you add $50,000 of cash. The price gap below is a different kind of boot. The calculator treats boot only as a replacement value below amount realized, and a blank or $0 replacement field is a full rollover, not a cash-out.

A cheaper replacement leaves $50,000 taxable

Buy $200,000, sell $400,000, single, long-term, other income $30,000, and no costs or depreciation. The gain is $200,000, with $19,450 at 0 percent and the rest at 15 percent. An outright sale owes federal tax of $27,082.50 and NIIT of $1,140, because MAGI is $230,000. A replacement of at least $400,000 owes $0 this year. A $350,000 replacement leaves $50,000 of boot, federal tax of $4,582.50, and NIIT of $0. Choose real estate and investment property on the real estate calculator. State pages: Arizona, Arkansas, California, Florida, Kansas, Kentucky, Maryland, Missouri, New York, Ohio, Oklahoma, Pennsylvania, Texas, Washington, West Virginia.

Where the $400,000 goes

1. Sell the investment property. Amount realized is $400,000 and the gain is $200,000.
2. In a deferred exchange the proceeds go to the qualified intermediary, not into your account.
3. Full rollover: replacement value of at least $400,000. Tax this year is $0 and NIIT is $0.
4. Cheaper replacement of $350,000. Boot is $50,000. Federal tax is $4,582.50 and NIIT is $0.
5. No exchange: federal tax is $27,082.50 and NIIT is $1,140.

Deferred, reverse, and property still being built

Those clocks are the deferred exchange. Publication 544 also names a reverse exchange when an intermediary misses a deadline, and it says a replacement that is still being produced can qualify. The pages opened here do not describe a simultaneous exchange as its own type. This calculator is the deferred comparison only.

Depreciation can come back later

Depreciation is deferred with the rest of the gain, and it can return on a later sale as unrecaptured Section 1250, up to 25 percent on the rates guide. This example claims none, so the full rollover shows none this year.

Related parties have a 2-year hold

If you exchange with a related person, such as a spouse, sibling, parent, or child, and either of you sells within 2 years, Publication 544 says the deferred gain is recognized as of that later sale. Form 8824 is also filed for those 2 years. This calculator does not apply that hold.

Moving into the replacement later

You cannot turn the replacement into a main home immediately. If exchange property is later used as a main home, Publication 523 requires a 5-year holding period under section 121(d)(10) before that exclusion. Revenue Procedure 2008-16 is separate: a dwelling can meet a safe harbor for the exchange itself when you own it 24 months and rent it at least 14 days in each 12-month period, with personal use inside the limit that procedure states. This calculator does not model either clock.

What happens at death

Publication 551 says inherited basis is generally fair market value on the date of death, which replaces the carryover basis from the exchange. This calculator does not apply a step-up.

A missed deadline makes the sale taxable

A missed 45-day or 180-day date fails the exchange, and the Form 8824 instructions say the gain may be taxable in the year of the transfer. This calculator does not detect a missed date, so the sale path above is the estimate.

States can add their own rules

States generally follow the federal deferral, but some add their own reporting or clawback rules, so check the state revenue department. This calculator does not model state conformity. Start with the state overview rather than a state list on this page.

How the exchange is reported

File Form 8824 for a transfer this year, even when recognized gain is zero. Recognized gain is reported on Schedule D, Form 4797, or Form 6252, whichever applies. For real property used in a trade or business, the Form 4797 instructions put the Form 8824 gain on Form 4797, line 5 or line 16. Do not report that business real estate on Form 8949 as if it were stock. This page does not fill the forms.

Publication 544 says the identification has to be a signed writing delivered to the other side of the exchange. Keep that writing with Form 8824. The instructions do not add a longer file list.

Next: the Section 121 guide, the collectibles guide, and the Schedule D guide for the net Form 4797 carries over.