A 1031 exchange, also known as a like-kind exchange, is one of the most powerful tax-deferral strategies available to real estate investors. By following the 1031 exchange process correctly, you can defer capital gains taxes and reinvest more of your equity into your next investment property.
However, there are strict 1031 exchange rules and deadlines, which means every detail matters. Missing a step or a deadline can disqualify your exchange. To help you stay on track, here’s a clear roadmap of the 11 steps to a successful 1031 exchange.
- List Your Property for Sale
Start the 1031 exchange process by putting your relinquished property on the market. Whether you work with a real estate professional or sell independently, this step is the foundation of your exchange. During this time, the 1031 CORP. Exchange Team is available to explain the exchange process, discuss your transaction and goals, and answer any questions.
- Retain a Qualified Intermediary (QI)
The 1031 regulations require you to retain a Qualified Intermediary (QI) before closing. At 1031 CORP., we act as your trusted third party, safeguarding your proceeds, preparing exchange documents, coordinating details, and managing deadlines to ensure compliance with all 1031 exchange rules.
- Sign an Agreement of Sale with a Buyer
Once you have a buyer, sign the Agreement of Sale for your relinquished property. Many investors reach out to 1031 CORP. at this stage to officially begin the exchange process.
- Exchange Documents Are Prepared
As your QI, 1031 CORP. will work directly with your closing agent, preparing exchange documents and ensuring your settlement statement reflects that this is a 1031 exchange.
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Closing & Secure Deposit of Funds
At closing, proceeds cannot be paid directly to you. Instead, funds are wired into a secure, FDIC-insured, interest-bearing segregated account in your name. This safeguard keeps your exchange compliant. 1031 CORP. will also provide you with access to view your account on the bank’s website.
- The 45-Day & 180-Day Deadlines Begin
Once your property closes, two critical deadlines are triggered:
- 45-Day Identification Period – You must identify potential replacement properties in writing.
- 180-Day Exchange Period – You must acquire one or more identified properties within 180 days.
These deadlines are based on calendar days and run concurrently.
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Identify Your Replacement Property
During the 45-day window, you’ll formally identify potential replacement properties using an identification form provided by 1031 CORP. Common rules include:
- 3-Property Rule – Identify up to three properties, regardless of value.
- 200% Rule – Identify more than three properties provided the total value doesn’t exceed 200% of the relinquished property’s value.
- Sign Agreement of Sale for Replacement Property
Once you’ve selected your property, sign the Agreement of Sale. Your exchange funds can be used for the earnest money deposit or to reimburse you at the replacement property closing if you’ve already paid the deposit out of pocket. Keep in mind that to maximize your tax-deferral, you should buy replacement property of equal or greater value and equity.
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Closing Documents for Replacement Property
1031 CORP. coordinates directly with the closing agent to ensure your replacement property purchase is properly documented as a 1031 exchange. Funds are securely transferred with your written authorization. It is essential title to the replacement property is vested the same as the relinquished property.
- Acquire Your Replacement Property
1031 CORP. coordinates directly with the closing agent to ensure your replacement property purchase is properly documented as a 1031 exchange. Funds are securely transferred with your written authorization. It is essential title to the replacement property is vested the same as the relinquished property.
- Reinvest & Grow Your Portfolio
With your 1031 exchange complete, you benefit from immediate tax deferral and can reinvest more equity into your portfolio. Better yet, as long as you hold the property for investment or business use, you can repeat the process and continue building wealth smarter.
Why Choose 1031 CORP.?
Not all exchanges follow the same order. Sometimes the replacement property is identified before the original property sells, or both are under contract simultaneously. No matter the situation, 1031 CORP. has the experience and personal service to guide you through the 1031 exchange process step by step.
We’ve helped thousands of investors defer taxes, maximize their reinvestments, and grow their real estate portfolios with pre-taxed dollars. Backed by decades of experience, our team ensures an exceptional exchange experience made easy so you can focus on your pursuit of opportunities.
Ready to start your exchange?
Contact our experienced exchange team today and discover why investors across the country trust 1031 CORP. to protect their equity, defer their taxes, and grow their portfolios. Call 800.828.1031 or contact us online.
