valuation

1031 exchange

A 1031 exchange, named after Section 1031 of the Internal Revenue Code, allows an investor to defer capital gains taxes when selling investment or business real estate and reinvesting the proceeds into like-kind property. The investor must identify replacement property within 45 days and close within 180 days, typically using a qualified intermediary to hold the funds. Any cash or non-like-kind property received, called boot, is taxable. Personal residences do not qualify.

Exam tip: Memorize 45 days to identify and 180 days to close. Taxes are deferred, not eliminated, and boot is taxable.
Example: An investor sells a rental duplex for $600,000 and buys a $750,000 small apartment building within the deadlines, deferring the capital gains tax.

1. An investor closes the sale of a relinquished property on March 1 in a Section 1031 exchange. What are the deadlines to identify and acquire replacement property?

Answer & explanation

Answer: C. Both periods start on the date the relinquished property transfers: 45 days to identify in writing and 180 days to close, and the 180 days run concurrently, not after identification. The exchange period is cut short by the tax return due date unless an extension is filed.

Related terms & state variants

adjusted basis basis boot capital gain

Sources

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Last verified: 2026-10-23