1031 Exchange Basics: What Investors Need to Know Before Selling

A 1031 exchange, named after Section 1031 of the Internal Revenue Code, allows real estate investors to defer capital gains taxes by reinvesting the proceeds of a sale into a “like-kind” property. 

When done correctly, a 1031 exchange can significantly increase your purchasing power and help you build long-term wealth. 

What Is a 1031 Exchange? 

A 1031 exchange allows an investor to: 

• Sell an investment property 

• Reinvest the proceeds in another investment property 

• Defer capital gains taxes that would otherwise be due upon sale 

This only applies to business or investment properties—not primary residences. 

Key Rules and Timelines 

• 45-Day Identification Rule: You must identify your replacement property(ies) within 45 days of the sale. 

• 180-Day Closing Rule: You must close on the replacement property within 180 days of the sale. 

• Qualified Intermediary (QI): A third-party intermediary must hold the funds during the exchange—investors may not take possession of proceeds. 

• Like-Kind Requirement: The replacement property must be of equal or greater value and also used for investment or business purposes. 

  
  

Common Mistakes to Avoid 

• Failing to use a QI 

• Missing the 45-day or 180-day deadlines 

• Buying a property of lesser value (which triggers taxable “boot”) 

• Not consulting with an attorney or tax advisor before starting 

At Title Stream, we assist with 1031 exchanges by working alongside your QI, reviewing contracts, and ensuring title transfers meet all IRS requirements for deferred gains treatment.