1031 Exchanges in 2025: The 45/180-Day Clock & 5 Mistakes to Avoid
If you’re thinking about selling a rental, small commercial building, or mixed-use property in 2025, a 1031 exchange is still one of the most powerful tax tools on the table.
Done right, a Section 1031 exchange lets you defer:
- Federal capital gains taxes
- Unrecaptured §1250 depreciation (up to 25%)
- The 3.8% Net Investment Income Tax (NIIT) on that gain
- Most state income tax on the sale, depending on the state
Done wrong, a single missed deadline or sloppy step can turn a “tax-free swap” into a fully taxable sale.
This guide walks through:
- What’s actually true in 2025 about 1031 exchanges
- How the 45-day and 180-day clocks really work
- What your Qualified Intermediary (QI) must do (and must not do)
- How boot, debt, and basis really behave
- The 5 mistakes that most often blow up exchanges
Planning a sale in the next 6–12 months?
Book a 1031 strategy call before you list the property so we can design the exchange around your real numbers and deadlines.
1. What’s changed for 1031 in 2025 (and what hasn’t)
Still real-property-only
Since the Tax Cuts and Jobs Act, Section 1031 applies only to real property held for investment or business use. Personal property and intangibles no longer qualify.
That means:
- Qualifies (if held for investment/business):
- Rentals (SFH, small multifamily, apartments)
- Commercial buildings and mixed-use
- Raw land, farmland, easements, certain long-term leaseholds (generally 30+ years)
- Does not qualify:
- Primary residence (that’s §121 territory)
- Most vacation homes (unless you meet Rev. Proc. 2008-16 safe-harbor rental rules)
- Flips, dealer inventory, property held primarily for sale
- Property outside the United States (U.S. and foreign real estate are not like-kind to each other)
- Equipment, vehicles, artwork, collectibles, IP, franchise rights
No new 1031 statute in 2024–2025
As of November 2025:
- The core 1031 rules (real-property-only; 45-day/180-day deadlines; like-kind standards) look the same as they have since TCJA and the 2020 final real-property regs.
- The IRS’s Form 8824 page lists “Recent Developments: None at this time”, which means no major new 1031-specific reporting rules were adopted for 2024–2025.
You will see articles in 2024–2025 mentioning:
- Proposed caps on 1031 deferral at $500,000 per taxpayer ($1M MFJ) in the Biden budgets
- “Enhanced reporting” expectations from some firms (more documentation, not new statutes)
Those are policy proposals and practice recommendations, not current law. If anything changes, it will show up first in the IRC, Treasury regs, or official IRS instructions—not just in marketing pieces.
One big 2025 exception: Southern California wildfire relief
For most taxpayers, 1031 deadlines cannot be extended for any reason—not weekends, not holidays, not personal emergencies. The only exception is formal IRS disaster relief.
In 2025, the IRS did exactly that for the Southern California wildfires:
- Taxpayers in certain FEMA-designated areas of Los Angeles County get extended deadlines under section 7508A.
- For qualified 1031 exchangers:
- Exchanges begun between Nov. 23, 2024 and Jan. 7, 2025 can generally extend the 45-day identification deadline to Oct. 15, 2025.
- Exchanges begun between July 11, 2024 and Jan. 7, 2025 may extend the 180-day deadline to the later of Oct. 15, 2025 or 120 days after the original 180-day date.
If you’re anywhere near a federally declared disaster and in a 1031, we should confirm relief from the IRS disaster page before assuming normal deadlines apply.
2. The 45-day and 180-day clock, step-by-step
The time limits in §1031 are brutal and non-negotiable. If you remember only three things, make it these:
- You identify replacement property within 45 calendar days of transferring your old property.
- You close on the replacement property within 180 calendar days, or by your tax-return due date (including extensions), whichever comes first.
- Weekends and holidays still count—no automatic extension.
Day 0: Closing the relinquished property
- Day 0 is the date you transfer title / close escrow on the property you’re selling.
- Before this date, you must:
- Engage a Qualified Intermediary (QI)
- Sign an exchange agreement assigning your sale contract to the QI
- Direct closing so that all net proceeds go straight to the QI (or a proper escrow/trust under the QI’s control)
If you close the sale and the funds hit an account you control—even for a day—the IRS treats it as a taxable sale, and you cannot “retrofit” it into a 1031 later.
Days 1–45: Identification period (calendar days, not business days)
The identification period starts when the exchange begins and runs 45 calendar days.
Example timeline:
- You close the sale on March 14.
- Your QI starts the exchange that day.
- The 45th day falls on April 28 at midnight (calendar-day count).
During this period, you must:
- Identify replacement property in writing
- Use a legal description, full street address, or clearly distinguishable name (“Mayfair Apartments, 123 Main St”).
- Sign the identification yourself.
- Deliver it to the right party:
- Usually the QI or the person obligated to transfer the replacement property—not your CPA, not your attorney, not your agent (unless they are that party).
You can revoke and change identifications up until midnight on Day 45 via a new written notice. After that, your list is locked.
✅ Any replacement property you actually receive before Day 45 is automatically treated as identified.
The three identification rules (unchanged since 1991)
The 1991 regs still govern how many properties you can identify.
3-Property Rule – 90%+ of exchanges use this
- Identify up to three properties of any value.
- You can close on one, two, or all three.
200% Rule
- Identify any number of properties, as long as their combined fair market value doesn’t exceed 200% of the value of what you sold.
95% Rule (rare, very risky)
- If you go over both the 3-property and 200% limits, your identification is valid only if you actually acquire at least 95% of the total value of everything you identified.
- Miss that 95% and the entire exchange is disqualified—not just the piece you didn’t buy.
Days 1–180: Exchange period (runs concurrently, not “45 + 180”)
The exchange period starts the same day as the identification period and runs 180 calendar days, or until your tax-return due date (including extensions), whichever comes first.
Key points:
- You do not get 45 days plus 180 days: the clocks run together.
- For year-end exchanges, the unextended due date can cut your 180 days short:
- Example: You close on Dec. 12, 2024.
- Day 180 is June 10, 2025.
- But your 2024 return is due April 15, 2025 (earlier), so your exchange period ends April 15 unless you file an extension.
If you’re doing a late-year sale, filing an extension is often mandatory to preserve the full 180 days.
3. Qualified Intermediaries: why they matter and how to choose one
In a deferred exchange (sell first, buy later), a Qualified Intermediary isn’t just helpful—it’s effectively mandatory if you want to avoid constructive receipt of funds. Treasury Reg. §1.1031(k)-1(g)(4) provides a safe harbor when you use a QI that isn’t a disqualified person.
What your QI actually does
A good QI will:
- Step into your sale and purchase contracts as “assigns”, creating the technical “exchange” instead of just a sale + purchase
- Receive and hold your sale proceeds in a restricted account so you never have actual or constructive receipt
- Track and enforce the 45/180-day deadlines
- Prepare core exchange documents and assist your closing teams with proper language and allocations
Who cannot be your QI
The regs treat some people as “disqualified” if they’ve been your agent within the last two years:
- Your employee
- Your attorney or CPA
- Your real estate agent or broker
- Your investment banker or financial advisor
- Most family members and entities you control
They can advise you—but they cannot hold the funds or act as the QI.
No federal license: why QI selection matters
As of 2025:
- There is no federal licensing or oversight for 1031 QIs.
- A handful of states impose bonding/insurance rules, but many do not.
That means anyone can call themselves a QI. When a QI fails or goes bankrupt, the IRS has consistently taken the position that your exchange still fails and your gain is taxable, even if the money is gone.
Best practices when choosing a QI:
- Membership in the Federation of Exchange Accommodators (FEA)
- Strong fidelity bond and errors & omissions insurance
- Segregated, FDIC-insured accounts (not commingled operating cash)
- Solid internal controls (SOC 1 / SOC 2 audits)
- Clear, written answers to: Where are my funds held? In whose name? Under what protections?
The Crandall case: intent isn’t enough
In Crandall v. Commissioner, an investor sold Arizona land intending to do a 1031 but let the title company hold the sale proceeds, rather than using a true QI. The court found the title company was effectively his agent, so he had constructive receipt of the funds and the entire exchange failed.
Lesson: you don’t get credit for good intentions. You need the right structure and documentation from day one.
4. Boot, debt, and the “trade equal or up” rule
A 1031 exchange doesn’t have to be all-or-nothing. You can have a partial exchange where you defer most of the gain but recognize some.
The tax term for “non-like-kind stuff” you receive is boot. It can be:
- Cash you take out
- Debt relief (you walk away with less debt than you had)
- Personal property or other non-real-estate value bundled into the deal
How much gain is actually taxable?
Under §1031(b) and related guidance:
- Realized gain = economic gain on the transaction
- Recognized gain (taxable) = lesser of
- Realized gain, or
- Net boot received (cash + debt relief – qualifying costs)
The character of that gain depends on the property:
- Long-term capital gain (15–20%) for most appreciation
- Unrecaptured §1250 gain on real-estate depreciation (up to 25%)
- Ordinary income for §1245 recapture (certain components or pre-1987 accelerated depreciation)
So boot is not automatically “ordinary income.” It’s taxable, but usually as capital gain or 25% §1250 gain, with only the true recapture portion at ordinary rates.
Common ways investors accidentally create boot
Cash boot (trading down in value)
- Sell for $500,000 net and buy for $400,000; the $100,000 difference is boot, taxable to the extent of your realized gain.
Mortgage boot (deleveraging without adding cash)
- Old property had a $350,000 mortgage; new one has $300,000.
- Unless you put in $50,000 of new cash to offset this drop, that $50,000 debt relief is boot.
Personal property boot
- You use exchange funds to buy real property plus $200,000 of equipment, furniture, or other personal property.
- That $200,000 portion is non-qualifying and treated as boot.
“Trade equal or up” in plain English
To fully defer gain at the federal level, you generally need to:
- Buy equal or greater value than what you sold
- Reinvest all net equity (no cash out)
- Replace all debt (with equal or greater new debt or additional cash)
Miss one of these three and you’ve created boot. Sometimes that’s intentional—taking a bit of cash out can be worth a manageable tax bill—but you should know the number before closing.
5. Basis, depreciation, and what really gets deferred
A 1031 does not erase your gain. It pushes it into the replacement property through the basis rules in §1031(d) and Publication 544.
Carryover basis (simplified formula)
A commonly used working formula is:
Basis in replacement =
Adjusted basis of old property
- cash you add
- gain recognized
– cash or other boot received
– debt relief (plus some additional fine-tuning for liabilities)
The result is that:
- Your unrecognized gain (including depreciation recapture exposure) moves into the new property,
- You start depreciating only the “new” money you invested as fresh basis (the rest continues on the old schedule or remaining life).
Depreciation recapture in a 1031
For real estate:
- Post-1986 MACRS property is generally straight-line, so you have “unrecaptured §1250 gain” taxed at up to 25% if recognized.
- In a properly structured 1031, that recapture is also deferred—it doesn’t disappear, but it isn’t triggered until a future taxable disposition.
Practically, that means:
- If you keep exchanging until death, your heirs can typically receive a step-up in basis to fair market value, wiping out the deferred capital gain and unrealized recapture under current law.
6. State tax wrinkles: withholding, clawbacks, and extra forms
Federal 1031 rules are only half the story. States layer on their own:
- Nonresident withholding on sales
- Clawback provisions when you move gain out of the state
- Annual reporting for out-of-state replacement property
Key examples (as of 2025):
California
- Requires nonresidents to withhold on sales (often 3⅓% of the sales price) unless you qualify for an exemption such as a 1031 exchange.
- If you exchange CA property into out-of-state property, you must file FTB 3840 in the year of the exchange and each year until you recognize the deferred CA gain.
Other clawback states
- Massachusetts, Montana, and Oregon also have clawback or special reporting rules when you swap out of the state and later sell the replacement property.
Withholding generally
- Many states require some percentage of the sales price or gain to be withheld on nonresident sellers (often 2–9%), with 1031-exchange exemptions if the transaction is fully deferred.
Point: even if the federal exchange is clean, we still need to plan around state withholding forms, clawbacks, and ongoing reporting.
7. Five mistakes that most often kill exchanges
Let’s bring it back to your content theme: the 45/180-day clock and five big mistakes.
Mistake 1: Missing the 45- or 180-day deadlines (or the tax-return cutoff)
- Identification not made by midnight on Day 45 → exchange fails.
- Replacement property not received by Day 180 or your unextended tax-return due date (whichever comes first) → exchange fails.
How to avoid it:
- Start looking for replacements before you list the relinquished property.
- Aim to identify 3–5 days before Day 45 so there’s time to fix mis-deliveries or description issues.
- For year-end closings, decide early whether to file an extension to preserve the full 180 days.
Mistake 2: Touching the money (actual or constructive receipt)
This includes:
- Proceeds wired to you or an account you control
- Funds parked with your attorney, CPA, or title company acting as your agent instead of with a true QI
- Rights in your exchange agreement that let you demand the cash before the exchange is done
Result: the IRS treats the transaction as a sale, not an exchange.
Fix:
- Engage a reputable Qualified Intermediary before closing.
- Make sure sale proceeds go directly to the QI or its escrow/trust—not through your operating accounts.
Mistake 3: Blowing the identification rules
Common identification errors:
- Listing more than three properties without satisfying the 200% or 95% rule
- Vague descriptions (“a duplex in Dallas”) instead of legal descriptions or full addresses
- Delivering your ID notice to the wrong party (e.g., your attorney, not the QI)
- Trying to add or change properties after Day 45
Fix:
- Use a simple written ID template with:
- Full legal descriptions / addresses
- Specific unit numbers or percentages for partial interests
- Send it to the QI and get written acknowledgment before Day 45.
Mistake 4: Creating boot you didn’t intend
- Trading down in value without realizing the cash difference is taxable
- Reducing debt and not adding cash to plug the gap (mortgage boot)
- Rolling personal property into the contract and paying for it with exchange funds
Fix:
- Before you sign a purchase contract, run a “trade equal or up” worksheet:
- Target price
- Debt to be assumed
- Cash you’ll add
- Estimated boot and its tax cost
Sometimes a little boot is fine if you’re consciously taking it. The danger is surprise boot.
Mistake 5: Title, related-party, and state-level missteps
A few easy-to-miss issues:
- Same-taxpayer rule – The taxpayer who sells must generally be the same taxpayer who buys (with narrow exceptions for disregarded entities, grantor trusts, etc.).
- Related-party rules – Direct swaps or certain related-party structures require two-year holding periods or the exchange can be retroactively disqualified.
- Ignoring state clawback / reporting – Failing to file required state forms (like CA FTB 3840 or Oregon OR-24) can lead to surprise state assessments, penalties, and interest even when the federal exchange is fine.
Fix:
- Decide who is on title (individual, LLC, trust) before you start the exchange.
- If a related party is in the mix—family, partnership, or controlled entities—have us and your attorney map out the two-year rules.
- For cross-state exchanges, identify both states’ reporting and clawback rules up front.
8. Documentation, Form 8824, and working with your advisory team
Even a perfect transaction can be painful to defend without documentation. At minimum, keep:
- Fully executed exchange agreement with the QI
- Copies of identification notices and QI acknowledgments
- Purchase and sale contracts and closing statements (CDs/HUD-1s)
- Prior and new depreciation schedules
- Form 8824 as filed with your federal return, plus any state 1031 forms (e.g., CA FTB 3840, OR-24)
On the professional side:
- Your CPA should model:
- Realized vs recognized gain
- Boot and its character
- Basis and depreciation on the replacement property
- Federal + state impact, including clawbacks
- Your real-estate attorney should:
- Review contracts for 1031-friendly language
- Address title and entity issues
- Help with related-party or multi-owner structures
- Your QI should:
- Coordinate exchange mechanics
- Keep everyone honest on the deadlines and safe-harbor requirements
9. Ready to explore a 1031 exchange?
If you own rentals or investment property and you’re:
- Sitting on large unrealized gains,
- Considering a market or asset-class pivot (single-family → multifamily, small property → DST, etc.), or
- Looking at a potential sale in the next 6–12 months,
a 1031 exchange may let you reposition your portfolio without writing a large check to the IRS this year.
Next step:
Schedule a 1031 planning call with The RVA Accountant.
We’ll:
- Run the numbers on your potential gain and boot
- Map out the 45/180-day timeline based on your target closing date
- Coordinate with your QI and real-estate team so the structure is right from day one
As always, this guide is educational only and not individualized tax or legal advice. 1031 exchanges touch federal law, state rules, financing, and entity structure—so before you sign a contract or accept an offer, let’s make sure the strategy, math, and mechanics all line up.
© 2025 The RVA Accountant, PLLC. All rights reserved.