Summary: A Section 1031 delayed exchange defers capital gains and depreciation recapture when investment or business real property is sold and the proceeds are reinvested in like-kind property through a qualified intermediary. Replacement property must be identified in writing within 45 calendar days of closing and acquired within 180 days. To defer all gain, the replacement must cost at least as much, all debt must be replaced, and no cash taken; any boot is taxable up to the realized gain. The deferred gain carries into the replacement property's basis.
How a 1031 exchange works
Section 1031 lets you defer capital gains tax (and depreciation recapture) when you sell investment or business real property and reinvest the proceeds in like-kind replacement property. Like-kind for real estate is broad: an apartment building for a strip mall, raw land for an office, a duplex for a Delaware Statutory Trust interest. What matters is that both properties are held for investment or business use; personal residences do not qualify.
Most exchanges are delayed exchanges using a qualified intermediary (QI): the QI holds the sale proceeds so you never touch the cash (touching it disqualifies the exchange), and you must identify replacement property within 45 days of closing and close on it within 180 days. Miss either deadline by a day and the whole gain becomes taxable. To defer all the gain, buy replacement property worth at least as much as what you sold and replace all the debt; any cash you keep or debt you shed is boot, taxed up to the amount of your gain.
The tax is deferred, not forgiven: your depreciation history and gain carry into the replacement property's basis. Sell the replacement for cash years later and the deferred gain (plus recapture) comes due. Hold until death and the heirs' step-up can erase it.
Worked example
Sell a rental for $500,000 with $30,000 of selling costs and an adjusted basis of $320,000: amount realized $470,000, realized gain $150,000. The $200,000 mortgage is paid off; you buy a $520,000 replacement with a new $200,000 mortgage and take no cash. Boot: $0 cash plus $0 debt relief = $0. Recognized gain: $0. Deferred gain: the full $150,000. New basis in the replacement: $320,000. Take $20,000 cash at closing instead and $20,000 of the gain becomes taxable now.
1031 exchange rules at a glance
Download the 1031 rules table (CSV).
| Rule | Requirement |
|---|---|
| Like-kind | Real property for real property; both held for investment or business |
| Identification period | 45 calendar days from relinquished closing |
| Exchange period | 180 calendar days from relinquished closing (or tax return due date, if earlier) |
| Identification rules | 3-property rule, 200% rule, or 95% rule |
| Qualified intermediary | Must hold proceeds; cannot be you, your agent, or a related party |
| Full deferral | Buy equal or greater value; replace all debt; take no cash |
| Boot | Cash or net debt relief; taxable up to the realized gain |
Guides
- How a 1031 Exchange Works: Timeline, Rules, and Example: The full 1031 exchange process: qualified intermediary, 45-day identification, 180-day closing, boot rules, and a worked $500,000 example.
- 1031 Like-Kind Rules 2026: What Qualifies and What Does Not: What like-kind means for real estate in 2026: qualifying swaps, personal-use limits, related-party rules, and the 2017 personal-property repeal.
- The 1031 45-Day Identification Rule: With Examples: The 45-day identification rule explained: the 3-property, 200%, and 95% rules, how to identify properly, and what happens if you miss the deadline.
- Reverse 1031 Exchanges Explained: Buying Before You Sell: How reverse 1031 exchanges work: the exchange accommodation titleholder, the 180-day combined clock, parking costs, and when reverse beats delayed.
- 1031 Exchange Fees and Intermediary Costs in 2026: What a 1031 exchange costs: QI fees, EAT fees for reverse exchanges, closing costs, and how to pick a qualified intermediary.
Related tools
- MACRS Depreciation Calculator: depreciation history carries into the replacement property
- IRS Tax Penalty Calculator: estimate what late filing or late payment costs
- HSA Contribution Calculator: max out triple-tax-advantaged health savings
- Severance Pay Calculator: model the payout and withholding on a severance package
Data current as of October 2026. Sources: IRC Section 1031, Treasury Reg. 1.1031(k)-1, Rev. Proc. 2000-37, Rev. Proc. 2008-16. This tool gives rough estimates for planning only and is not tax, legal, or financial advice.