A 1031 Exchange allows you to sell an investment property and reinvest the proceeds in another investment property without paying the various taxes due at sale.
This process is straightforward but very rigid and any deviation from the allowed rules can invalidate the exchange, erasing any tax savings and potential exposing you to IRS penalties.
The core steps involved in the 1031 Exchange
There are two key deadlines that the Exchanger must meet to have a valid exchange
Within 45 calendar days of the transfer of the first Relinquished Property, the Exchanger must identify the Replacement Property to be acquired.
The Exchanger must receive the Replacement Property within the earlier of 180 calendar days after the date on which the Exchanger transferred the first Relinquished Property, or the due date (including extensions) for the Exchanger’s tax return for the tax year in which the transfer of the first Relinquished Property occurs.