1031 Exchange Tips

If you already understand the basic mechanics of a 1031 exchange (if not, start with our full guide), here are the practical tips that experienced investors actually rely on to keep an exchange from going sideways.

Before You List the Property

• Line up your qualified intermediary before you have a buyer. The QI agreement needs to be in place before closing — scrambling to find one after you're already under contract wastes days you don't have.
• Start scouting replacement properties early. The 45-day identification clock starts the day you close, not the day you decide to look. A head start turns a frantic search into a calm one.
• Loop your CPA in before you sign anything. They need to confirm the exchange fits your broader tax picture — including any state-specific quirks — before you're committed.

During the Exchange

• Never let sale proceeds touch your hands or your regular bank account, even briefly. Direct receipt of funds — even for a day — can disqualify the entire exchange.
• Put your identification in writing, signed, and delivered to your QI — not a verbal mention or a text message. The IRS requires unambiguous written identification within the 45-day window.
• Only use the 200% or 95% rule if you actually need more than three candidate properties. The three-property rule is simpler and avoids the stricter requirements those other tests carry.
• Match or exceed both price and debt on the replacement property. Buying cheaper or financing less debt than you paid off usually creates taxable boot — see our formula guide for the exact math.
• Build in a financing buffer. If your replacement purchase financing falls through close to the 180-day deadline, there's generally no extension — have a backup identified property or backup financing lined up.

Tax and Recordkeeping

• Track depreciation recapture separately from your capital gain. It's often taxed differently, and your CPA needs your full depreciation schedule to calculate it correctly.
• Keep every document — the exchange agreement, identification notices, closing statements for both properties — in one file. You'll need them to complete Form 8824 and to defend the exchange if it's ever questioned.
• Confirm your state's conformity to federal 1031 treatment. Not every state treats a deferred exchange the same way for state income tax purposes — check this before you assume your state bill is also fully deferred.

Strategic Tips

• Consider a reverse exchange if you find the replacement property first. It's more expensive and more complex to set up, but it removes the pressure of the 45/180-day clock running against you while you still own the old property.
• Don't force an exchange into a mediocre replacement property just to hit the deadline. A rushed, overpriced replacement can cost you more over time than simply paying the tax and buying the right property later would have.
• Think beyond one exchange. Many investors chain exchanges across a career, deferring gain repeatedly — and some pursue holding a final property until death, where the separate step-up-in-basis rules can eliminate the deferred gain for heirs. Ask your estate planner and CPA how this fits your long-term plan.