1031 Exchange Execution Checklist

Set the exchange up before the sale closes — you cannot do it retroactively.

• Confirm both properties are held for investment or business usePersonal residences, vacation homes, and developer inventory held for sale do not qualify.
• Engage a Qualified Intermediary before the closing dateQI agreement must be signed before the relinquished property closes; there is no retroactive setup.
• Vet the QI: bonded, insured, experienced, segregated accountsQI failures happen (LandAmerica 1031, 2008) — use established, well-capitalized firms; typical fee $800–$2,500.
• Confirm the QI is not your CPA, attorney, or a related partyA disqualified intermediary voids the exchange.
• Add 1031 cooperation language to the purchase and sale agreementAssign exchange rights to the QI; cross-check terms via the PSA Key Terms checklist.
• Run a tax projection on the gain you're deferringQuantify capital gain, 25% Section 1250 recapture, and 3.8% NIIT so you know what's at stake before you commit.
• Set the target replacement price and debt needed to fully deferKnow the equal-or-greater value and loan targets before you list.

The fastest way to blow up an exchange is to touch the money. Keep every dollar with the QI.

• Direct all sale proceeds to the QI, never to the taxpayerTouching the cash — even briefly — kills the exchange.
• Avoid actual or constructive receipt of funds during the exchangeFunds you can access or draw on count as received and trigger tax.
• Confirm the same taxpayer/EIN that sold is the one acquiringTitle and tax ID on the replacement must match the relinquished; entity changes break the exchange. A single-member LLC owned by the same taxpayer is fine (disregarded entity).
• Do not pull cash out via a pre-sale refinanceCash from a refinance close to the sale can be treated as taxable cash boot.

Within 45 calendar days of closing, identify replacement candidates in writing under one of the three IRS rules.

• Deliver written, signed identification to the QIEmail to the QI is acceptable; verbal or unsigned identification fails.
• Describe each property by address or legal descriptionVague descriptions are treated as insufficient identification.
• Pick an identification rule: 3-Property, 200%, or 95%3-Property (up to 3 of any value) is most common; 200% (any number, total value ≤ 200% of sold price); 95% (any number, but must close on 95% of identified value) is rarely used.
• Identify backup properties, not just the primary targetMost investors list a primary plus two backups to survive a deal falling through.
• Identify a backstop DST in case no direct replacement landsA Delaware Statutory Trust interest counts as like-kind real estate and can absorb proceeds when the 45-day clock runs out — the standard safety valve.
• Deliver identification on or before day 45 — no exceptionsMissing this deadline is unrecoverable and fails the exchange.

Close on replacement property in time and structure value and debt so no gain is recognized.

• Close on replacement by day 180 — or the tax-return due date, if earlierA Q4 sale may require closing before April 15 unless you extend the return.
• Buy replacement of equal or greater value than the sale priceCompare to sale price, not basis. Trading down creates taxable boot.
• Replace debt at equal or greater than the debt paid offReducing the loan creates mortgage boot, taxed as if cash was received — offset it with new debt or added cash.
• Reinvest 100% of the net proceeds held by the QIAny cash you keep is cash boot, taxable up to the amount of gain.
• Confirm replacement is like-kind: any U.S. real estate for any U.S. real estateOffice for retail, land for building, one property for several — all qualify; personal property does not (post-TCJA).
• Decide on any intentional partial boot in advancePartial deferral beats none — just know the taxable amount before closing.

Handle non-standard timing or ownership, then close out the paper trail for your CPA.

• Use a reverse exchange if you must buy replacement before sellingQI parks the replacement; adds roughly $5K–$15K in fees and needs interim financing — still all within 180 days.
• Use an improvement (build-to-suit) exchange to count renovations in valueImprovements must be completed and paid within the 180-day window to count toward replacement value.
• Resolve partnership splits early with a drop-and-swapDistribute to TIC interests ideally 1–2 years before sale; drops close to closing draw IRS scrutiny.
• Flag related-party exchanges for the 2-year holding ruleBoth sides must generally hold the exchanged property two years; avoid unless necessary.
• Confirm state conformity with federal treatmentFlorida has no income tax and conforms; watch California's clawback and Pennsylvania non-conformity for out-of-state assets.
• Collect the QI's final exchange report for Form 8824Report the exchange on the tax return for the year of the relinquished sale; hand the package to your CPA.