# 1031 exchange

> A 1031 exchange lets an investor defer capital gains tax on the sale of business or investment real estate by reinvesting in like-kind property, identifying it within 45 days and closing within 180. Primary homes don’t qualify.

Also called: like-kind exchange, Section 1031 exchange, tax-deferred exchange, Starker exchange. Topic: Closing costs and taxes.

Named for Section 1031 of the tax code, a like-kind exchange lets an investor roll the gain from one property into the next instead of paying [capital gains tax](https://brokerandagent.com/glossary#capital-gains-tax) now. The tax is deferred, not erased: the old property’s [basis](https://brokerandagent.com/glossary#cost-basis) carries over to the new one.

## What property qualifies for a 1031 exchange?

Both the property you sell and the one you buy must be real property held for use in a business or for investment. Real estate is broadly like-kind to other real estate, so you can trade a rental house for an apartment building or land. Since 2018, only real property qualifies; equipment, vehicles and art no longer do.

Your main home doesn’t qualify, and the IRS lists second homes and vacation homes used mainly for personal purposes as excluded too. Property held mainly for resale, like a flip, doesn’t qualify either, and U.S. real estate isn’t like-kind to real estate outside the country.

## What are the 45-day and 180-day rules?

The clock starts the day you sell. You have 45 days to identify possible replacement properties in writing. You must receive the replacement within 180 days of the sale or by the due date of your tax return for that year, with extensions, whichever comes first. Both count calendar days, weekends and holidays included.

The second limit matters late in the year. For a sale in the last few months of the year, day 180 falls after the usual April 15 filing date, so you may need to extend your return to keep the full period.

## Who holds the money during the exchange?

In a typical delayed exchange you can’t touch the sale proceeds. A qualified intermediary, sometimes called an accommodator, holds them and uses them to buy the replacement, much like an [escrow](https://brokerandagent.com/glossary#escrow) holder. The IRS doesn’t let you act as your own intermediary, and neither can anyone who has acted as your agent in the past two years, including your [real estate agent](https://brokerandagent.com/glossary#real-estate-agent), attorney or accountant.

## What is boot, and how is the exchange reported?

Cash or other property that isn’t like-kind, received in the exchange, is called boot, and it can be taxed. Taking on less mortgage debt on the new property than you paid off on the old one can also create taxable gain.

You report the exchange on IRS Form 8824 with your return for the year of the sale. The rules are technical, so line up a qualified intermediary and a tax professional before you list the property.

## Example: the deadlines and the deferred gain

| | |
| --- | --- |
| Rental property sold (closing date) | March 2, 2026 |
| Deadline to identify replacements (day 45) | April 16, 2026 |
| Deadline to receive the replacement (day 180) | August 29, 2026 |
| Sale price after selling costs | $600,000 |
| Adjusted basis of the rental | $350,000 |
| Gain deferred if all proceeds are reinvested | $250,000 |

Illustrative numbers. Because the sale is in March, day 180 comes before the 2026 return’s due date, so the 180-day limit applies. The replacement property starts from the old property’s basis, adjusted for any added cash or debt.

## Common mistakes

- Taking possession of the sale proceeds, even briefly, which can disqualify the exchange.
- Treating the 45-day deadline as business days. It counts calendar days.
- Trying to exchange a primary home, or a vacation home used mainly for personal use.
- Assuming the tax is gone. It’s deferred until you sell without another exchange.

## Questions

### Can I do a 1031 exchange on my primary home?

No. A primary residence is personal-use property. Gain on a main home may instead qualify for the [home sale tax exclusion](https://brokerandagent.com/glossary/home-sale-tax-exclusion).

### Can I move into the replacement property?

Not if you’re holding it mainly for personal use; the replacement must be held for business or investment. Converting it to a home later brings extra rules, so get tax advice first.

### Does the replacement have to be the same type of property?

No. For real estate, like-kind is broad: a rental house can be exchanged for an apartment building, commercial property or land, as long as both are in the U.S. and held for business or investment.

## Related terms

- [Capital gains tax](https://brokerandagent.com/glossary#capital-gains-tax): Capital gains tax is income tax on the profit from selling an asset such as a home: the amount realized after selling costs, minus your cost basis. Gain on a main home may be partly or fully excluded.
- [Cost basis](https://brokerandagent.com/glossary#cost-basis): Cost basis is what you’ve invested in a property for tax purposes: generally the purchase price plus certain buying costs and the cost of improvements. Subtracting it from what you realize on a sale gives your gain or loss.
- [Home sale tax exclusion](https://brokerandagent.com/glossary/home-sale-tax-exclusion): The home sale tax exclusion lets you keep up to $250,000 of profit from selling your main home free of federal income tax, or $500,000 if married filing jointly, if you owned and lived in it 2 of the last 5 years.
- [Form 1099-S](https://brokerandagent.com/glossary#form-1099-s): Form 1099-S is the IRS form that reports a real estate sale and its gross proceeds. The closing agent usually files it and gives the seller a copy; some main-home sales are exempt with the seller’s written certification.
- [Escrow](https://brokerandagent.com/glossary#escrow): Escrow is an arrangement in which a neutral third party holds money or documents, like the earnest money deposit or the deed, until the conditions of a sale are met. The word also names a lender’s account for taxes and insurance.

## Sources

- [IRS: Like-kind exchanges under IRC Section 1031](https://www.irs.gov/newsroom/like-kind-exchanges-under-irc-code-section-1031)
- [IRS: Like-kind exchanges, real estate tax tips](https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips)
- [IRS: About Form 8824, Like-Kind Exchanges](https://www.irs.gov/forms-pubs/about-form-8824)

Checked 2026-10-02 by the Broker & Agent team. General information, not legal, tax or lending advice.

Source: https://brokerandagent.com/glossary/1031-exchange