The 1031 Process.
From property sale to subscription closing — the full timeline of a 1031 exchange in plain English. What happens, when it happens, and what you need ready at each step.
Before you sell.
The work you do before listing or accepting an offer determines whether your 1031 succeeds or fails. Most failed exchanges trace back to a missing step in this phase — usually engaging a Qualified Intermediary too late, misunderstanding what qualifies, or not having a replacement-property strategy ready.
What to do in the weeks before sale
- Talk to your CPA. Confirm the gain you're deferring, depreciation recapture exposure, and your federal and state tax position if the exchange were taxable. Some CPAs charge $500–$1,500 for this analysis; it's money well spent.
- Decide your goal. Full deferral, partial deferral, or pulling some equity out as taxable boot. The right answer depends on your tax situation and what you actually need from the proceeds.
- Engage a Qualified Intermediary. The QI must be in place before you close on the sale. Sign engagement, fund their setup fee, and confirm their account is ready to receive proceeds.
- Confirm same-taxpayer rule. The taxpayer name on the relinquished property must match the taxpayer name on the replacement. If you held the old property as an LLC, the new title must match.
- Plan for debt replacement. Replacement property must carry equal or greater debt — or you must add cash to make up the difference. Reduced debt creates taxable boot.
- Begin researching replacement options. Whether you're considering direct property or DSTs, start identifying candidates now. The 45-day window is short — you don't want to start research at Day 0.
Closing on the sale before engaging a QI. Once you take possession of the proceeds — even briefly, even through your attorney's IOLTA account — the exchange is dead. Engage the QI first. Always.
Day 0: The sale closes.
The day your sale closes is Day 0 of the exchange. Both the 45-day and 180-day clocks start ticking from this date. Calendar days only — no extensions for weekends, holidays, or natural disasters in most cases.
What happens at the closing table
At your sale closing, the buyer's funds flow not to you but to your QI's exchange account. The closing statement should reference the 1031 exchange. You sign the closing documents and the QI takes custody of the proceeds.
What you need ready:
- QI engagement letter signed and on file
- QI account information for the wire instructions
- Closing statement flagged as a 1031 exchange
- QI's exchange documents (qualified exchange accommodation agreement) signed
- Replacement-property research underway — you're already 45 days from the identification deadline
Don't ask the closing agent to wire any portion of proceeds to you "to cover expenses." That's the most common form of constructive receipt and it kills the exchange. If you need cash for closing costs or other expenses, fund them from a separate account.
Days 1–45: The identification window.
The most time-pressured phase of any 1031 exchange. By midnight of Day 45, you must identify replacement property in writing to your QI. Miss this and the entire exchange fails — the IRS does not grant extensions.
Research and narrow the field
For direct property, this means inspections, title review, financing pre-approval, and underwriting. For DST replacements, it means reviewing the Private Placement Memorandum, due diligence reports (FactRight, Cherry Bekaert), and meeting with a registered representative to walk through the offering.
- Visit the property (in person or virtually) for direct deals
- Review PPMs for DSTs you're seriously considering
- Run the sponsor through your evaluation framework
- Confirm financing or subscription terms
- Coordinate with your CPA on tax implications of each option
Submit written identification to your QI
Choose your identification rule and submit your identification in writing — email or fax to the QI — before midnight on Day 45. The identification must be specific enough that the property is unambiguously identified (full legal description or unambiguous address; for DSTs, the offering name plus sponsor).
- Identify under one rule: 3-Property, 200%, or 95%
- Submit in writing to your QI before midnight Day 45
- Get written acknowledgment of receipt from the QI
- Begin subscription paperwork (DSTs) or purchase contract (direct)
This is the moment to talk to a specialist. Registered representatives familiar with current DST offerings can often identify qualifying replacement property within the timeline, even when direct property has fallen through.
Days 46–180: The closing window.
You have until Day 180 to close on identified replacement property. For direct property, this is when the inspection, financing, and title work happens. For DSTs, "closing" means subscription is accepted and funded — typically a much faster process.
Subscribe and fund
DST subscriptions move fast. Once you've decided on a DST and reviewed the PPM, the subscription paperwork takes 5–10 business days. Your QI funds the subscription directly from the exchange account.
- Complete subscription documents with your registered representative
- Provide accreditation verification
- QI wires subscription amount directly to the DST
- Confirm subscription acceptance (Trust acknowledges receipt)
- Receive your beneficial interest documentation
Standard real estate closing
Direct property exchanges run closer to the full 180-day window. The QI funds the purchase from the exchange account at closing. Title goes in the same taxpayer name as the relinquished property.
- Inspections, title work, and financing finalized
- QI wires purchase funds at closing
- Property closes; title in matching taxpayer name
- QI provides closing statement and exchange completion documentation
- Replacement value ≥ relinquished value, replacement debt ≥ relinquished debt (or add cash for the difference)
If your exchange spans a calendar year, your 180-day deadline is the earlier of 180 days OR the due date of your tax return for the year of sale (including extensions). Plan accordingly — many tax-year-end exchanges have effective deadlines well short of 180 days.
After closing.
The exchange is complete, but you have ongoing tax and recordkeeping obligations.
File IRS Form 8824
Report the exchange on Form 8824 (Like-Kind Exchanges) with your tax return for the year of the relinquished property sale. Some states require additional state-level filings (California, Oregon, Massachusetts, and Montana have unique rules).
- Form 8824 filed with federal return
- State-equivalent forms where applicable
- Coordinate with your CPA on basis and recapture tracking
Maintain your file indefinitely
The IRS may audit a 1031 exchange years after the fact, especially when the replacement property is eventually sold. Maintain your full file:
- QI engagement letter and final closing statement
- Identification letter (signed and dated)
- Closing statements for both relinquished and replacement properties
- Subscription documents (for DST replacements)
- Form 8824 and supporting schedules
- Basis tracking — the basis from the relinquished property carries forward; track it for eventual sale
For DST investors specifically
During the hold period, monitor distributions, review K-1 tax reporting in early Q1, and stay aware of sponsor communications about the property. When the sponsor signals an upcoming disposition, prepare for your next 1031 decision: roll into another exchange, or recognize the deferred gain.
Your team.
A successful 1031 exchange involves multiple professionals working together. Each plays a specific role; none of them substitute for another.
Qualified Intermediary (QI)
Holds your sale proceeds, processes the exchange paperwork, and funds the replacement purchase. Required by IRS. Engage before sale closing. Look for: audit history, segregated accounts, bonding and insurance, transparent fees.
CPA / Tax Professional
Calculates your gain, depreciation recapture exposure, and tax position. Files Form 8824. Tracks basis through the exchange and into the hold period. Engage early — don't wait until tax filing season.
Real Estate Attorney (for direct property)
Reviews purchase contracts, title commitments, and closing documents. Handles same-taxpayer-rule documentation if you're using LLCs or trusts.
Registered Representative (for DST replacements)
Walks you through DST offerings, presents PPMs, processes subscription paperwork, and coordinates with the sponsor. Securities offered through Realta Wealth, Member FINRA/SIPC, and other independent broker-dealers.
Sponsor / Property Manager (during the hold)
For DSTs, the sponsor and master tenant handle property operations. You receive distributions, K-1s, and periodic updates. You're not involved in operational decisions during the hold.
Common timing pitfalls.
The 45-day and 180-day deadlines are firm. Most failed exchanges aren't about close calls — they're about preventable mistakes that compound over the timeline.
- Engaging the QI too late. The QI must be in place before sale closes. Even one day late kills the exchange.
- Touching the proceeds. Any constructive receipt — even briefly — disqualifies the exchange.
- Verbal identification. Identification must be in writing to the QI by midnight Day 45. Phone calls and verbal commitments don't count.
- Mixing identification rules. You pick one rule (3-Property, 200%, 95%). Mixing them invalidates the identification.
- Insufficient debt replacement. Less debt on the replacement creates taxable mortgage boot. Add cash or replace the debt level.
- Title in the wrong name. Same-taxpayer rule is strict. If you held the old property in an LLC, the new title must match.
- Year-end timing surprise. If your sale is late in the calendar year, your 180-day deadline may be the earlier tax-return due date. Confirm with your CPA.
- Subscribing to a DST without reviewing the PPM. Reg D requires accredited investors, but it's still your responsibility to read the offering documents. Don't skip this.
Frequently asked questions.
How early should I engage a Qualified Intermediary?
As early as possible — ideally 30+ days before your expected sale closing. The QI needs time to set up the exchange account, prepare the qualified exchange accommodation agreement, and coordinate with your title company. Engaging late creates risk that the QI isn't fully in place before closing, which can derail the exchange.
Can I extend my 45-day or 180-day deadline?
No. The IRS does not grant extensions for 1031 deadlines. Limited disaster relief is sometimes available for federally declared disasters (FEMA-declared areas), but it's narrow and unreliable. Plan as if there are no extensions — because in nearly every case, there aren't.
What if I close on my replacement property before Day 45?
That's fine — there's no minimum holding period before closing. If you've identified replacement property and can close before Day 45, you can do so and complete the exchange. Some DST subscriptions close within 1–2 weeks of identification.
How long does a typical DST subscription take?
Most DST subscriptions complete in 5–10 business days from when you sign the subscription agreement. The registered representative submits your paperwork to the sponsor, the sponsor accepts the subscription, your QI wires the funds, and you receive your beneficial interest documentation. Direct property exchanges take significantly longer due to inspection, financing, and title timelines.
Can I use multiple QIs in one exchange?
No. One exchange uses one QI. The QI receives proceeds at sale and funds the replacement purchase. Switching QIs mid-exchange would create constructive receipt issues and likely disqualify the exchange.
What happens if my identified property falls through?
If you've identified property under the 3-Property Rule and one falls through, you can close on any of the remaining identified properties — you don't have to close on the specific one that failed, just any one (or more) of the three you identified. If all three fall through, your exchange fails and the gain becomes taxable. This is why many investors identify a DST as a "backstop" option even when their primary plan is direct property.
Can I do multiple replacement properties?
Yes. You can split your 1031 proceeds across multiple replacement properties — direct property and DSTs combined, or multiple DSTs from different sponsors. As long as the total replacement value satisfies the value and debt requirements, the exchange holds. Many investors diversify by splitting across 2–4 DSTs in different property types or markets.
What does my CPA need to file at year-end?
Form 8824 (Like-Kind Exchanges) filed with your federal return. Some states require additional state-level filings — California, Oregon, Massachusetts, and Montana each have unique rules. Your CPA also tracks the basis from the relinquished property forward to the replacement, which matters when you eventually sell.
Where are you in the process?
Calculate your deadlines from your closing date, or talk to a specialist who can walk through your specific timeline and replacement options.