Section 1031 like-kind exchange

A Section 1031 like-kind exchange defers capital gain on the sale of investment or business-use real estate by rolling the proceeds into another qualifying property. The deferred gain reduces the basis of the replacement property; if you hold to death, the basis steps up and the deferral becomes permanent elimination.

The two windows

The 1031 is famously tight on timing:

• 45 days from closing on the sold property to identify replacement candidates (in writing, sent to the Qualified Intermediary)
• 180 days from closing to complete the purchase

Miss either deadline and the deferral is lost.

The Qualified Intermediary (QI)

You cannot touch the sale proceeds — they must be held by a QI from sale through purchase. Choosing a reputable QI is critical; QI failures have cost taxpayers millions over the years.

What qualifies as "like-kind"

Real property for real property — within the US. The 2017 Tax Cuts and Jobs Act eliminated 1031 treatment for personal property, but real-estate-to-real-estate exchanges remain.

Three-property + 200% rules

The 45-day identification has multiple safe harbors:

• Three-property rule: identify up to 3 properties of any value
• 200% rule: identify any number of properties, total FMV up to 200% of the relinquished value
• 95% rule: identify any number, must close on 95%+ of identified FMV

DST backups

Delaware Statutory Trusts (DSTs) are pre-packaged 1031-eligible real estate ownership interests. Often used as a "safety net" identification in case the primary replacement falls through.