Accounts
1031 Exchange
Qualified intermediary custody for a like-kind exchange of real property
Key takeaways
- Under IRC § 1031, gain on real property held for investment or business use can be deferred when it is exchanged for like-kind real property.
- The exchanger may not take actual or constructive receipt of the sale proceeds — a qualified intermediary must hold them.
- Two deadlines control the exchange, and neither can be extended: 45 days to identify replacement property, 180 days to close.
What it is
Qualified intermediary custody for a like-kind exchange of real property. The account is a structure; the investments it holds are separate and carry their own risks.
How it works
- Before closing on the relinquished property, engage the qualified intermediary and sign the exchange agreement.
- Sale proceeds are wired directly to the intermediary and held in a segregated exchange account — never to the exchanger.
- Identify replacement property within 45 days, then close within 180 days of the original sale.
Eligibility
Available to owners of real property held for productive use in a trade or business or for investment. Personal residences do not qualify.
Contributions and funding
Funded by the proceeds of the relinquished property sale, wired directly from escrow to the exchange account.
What it can hold
Cash exchange proceeds, held in a segregated account pending the acquisition of replacement property.
Taxes and reporting
Gain is deferred, not eliminated — basis carries over to the replacement property. Any cash or non-like-kind property received (“boot”) is taxable. Requires tax review
Withdrawals and distributions
Funds are released to close on the identified replacement property. Unused proceeds are returned at the end of the exchange period and are generally taxable then.
Risks and limitations
- Missing the 45- or 180-day deadline disqualifies the exchange entirely
- Taking receipt of proceeds, even briefly, destroys the deferral
- Since 2018, only real property qualifies — personal property exchanges were eliminated
- Identification rules are strict and unforgiving
Frequently asked questions
Can I touch the money between sales?
No. Actual or constructive receipt of the proceeds disqualifies the exchange. That is precisely why a qualified intermediary is required.
What if I only reinvest part of the proceeds?
The portion not reinvested is ‘boot’ and is generally taxable.
Do the deadlines ever get extended?
Only in narrow, IRS-declared disaster situations. Otherwise they are absolute, and they run concurrently.
Educational only. This page is general information, not individualized investment, legal, or tax advice. Rules depend on your account type, transaction, tax year, and circumstances — consult a qualified professional.