Understanding the 45-Day & 180-Day Rules

A 1031 exchange is a powerful tool for real estate investors looking to defer capital gains taxes and reinvest in new properties. However, to qualify for this tax benefit, you must follow strict IRS deadlines—the 45-day identification period and the 180-day closing period. Failing to meet these deadlines can disqualify your exchange, leading to immediate tax liability.

The 45-Day Identification Rule

Once your relinquished property closes, the IRS gives you 45 calendar days to formally identify potential replacement properties. This deadline is non-negotiable, and the clock starts ticking the day after closing—including weekends and holidays.

Identification Guidelines

The IRS allows investors to identify properties using one of the following methods:

• Three Property Rule: Identify up to three properties, regardless of value.
• 200% Rule: Identify multiple properties, but their total value cannot exceed 200% of the relinquished property’s sale price.
• 95% Rule: Identify an unlimited number of properties, but you must purchase at least 95% of their total value.

🛑 Key Warning: You must submit your property list in writing to a Qualified Intermediary (QI) before the 45-day deadline. If you fail to do so, your exchange will be disqualified, and you’ll owe taxes on your sale.

The 180-Day Exchange Completion Rule

After selling your property, you have 180 calendar days to close on your replacement property. This includes the 45-day identification period, leaving 135 additional days to finalize the purchase.

Example Timeline:

• January 1 – You close on the sale of your property.
• February 15 – Your 45-day identification period ends.
• June 30 – Your 180-day exchange deadline expires.

⚠️ Important Reminder: If your tax filing deadline falls within the 180-day window, your exchange must be completed before you file your tax return, unless you request an extension.

Common Mistakes That Can Jeopardize Your 1031 Exchange

• Missing the 45-day deadline – If you don’t submit your property list on time, your exchange is disqualified.
• Failing to close by the 180-day deadline – Even if you identify a property, you must complete the purchase to maintain tax-deferred status.
• Changing properties after submission – Once your identification form is submitted, you cannot alter your selections unless you meet IRS exceptions.
• Underestimating financing delays – Appraisals, inspections, and lender approvals can take time, so plan ahead.

✔️ Start property research early – Don’t wait until after selling your property to search for replacement options.
✔️ Work with an experienced Qualified Intermediary – They’ll ensure all paperwork is submitted correctly and on time.
✔️ Be proactive with financing – Secure funding early to prevent delays that could cause you to miss the deadline.

Make Your 1031 Exchange a Success

Strict adherence to IRS deadlines is essential for preserving the tax benefits of a 1031 exchange. By working with knowledgeable professionals and planning ahead, you can ensure a smooth, compliant exchange that maximizes your investment potential.