1031 Exchange Rules (2026)
Every rule governing a 1031 exchange, organized by category with the specific IRS code citation. Based on current regulations through 2026 and written by a Certified Exchange Specialist who has navigated these rules on 5,000+ exchanges.
- Like-kind is broader than people think: any U.S. investment real estate for any other — land for apartments, a rental condo for a warehouse.
- Identify up to 3 replacement properties (any value), or more under the 200% rule.
- The replacement must be of equal or greater value — and equal or greater debt — or the difference is taxable boot.
- There is no fixed holding period in the statute; the IRS tests your intent. Most advisors treat 1–2 years of investment use as the safe pattern.
- Related-party exchanges carry a 2-year holding requirement; report every exchange on IRS Form 8824.
The like-kind rule
Code: IRC §1031(a). Rule: The relinquished and replacement property must both be “real property held for productive use in a trade or business or for investment” — and the term “like-kind” is interpreted broadly for real estate.
Virtually any US real estate qualifies as like-kind to any other US real estate. A single-family rental can exchange into commercial office space. Raw land can exchange into an apartment building. Mineral rights can exchange into a duplex.
Since the 2017 Tax Cuts and Jobs Act, personal property no longer qualifies. Equipment, art, vehicles, intellectual property — all removed from 1031 treatment.
Qualifying property
Qualifying property must be held for:
- Investment (held to produce income or appreciate), or
- Productive use in a trade or business (used by the taxpayer in their business)
Not qualifying
- Primary residences (covered by IRC §121 exclusion, separate treatment)
- Property held primarily for sale (fix-and-flip inventory, homebuilder lots)
- Stocks, bonds, partnership interests, REITs
- Foreign-to-domestic or domestic-to-foreign real estate
- Vacation homes used primarily personally (with exceptions under Rev. Proc. 2008-16)
Holding period rules
The IRS doesn't publish a bright-line holding period. “Intent to hold for investment” is the standard, determined by facts and circumstances.
Industry practice:
- Absolute minimum: 12 months — anything shorter looks like dealer activity (flipping)
- Safer: 24 months — most practitioners and many IRS rulings treat this as the threshold for clear investment intent
- Exchanging into a property you plan to live in: 2 years minimum rental before conversion (PLR 200448010 and related guidance)
You won't find “2 years” in IRC §1031. It's a safety margin derived from private letter rulings, tax court cases, and practitioner consensus. Shorter holds have survived audits; longer holds are safer.
45- and 180-day timelines
Code: IRC §1031(a)(3). Two calendar-day clocks start when your relinquished property closes:
- Day 45: Written identification of replacement property(ies) must be delivered to the qualified intermediary.
- Day 180: Replacement property acquisition must be complete.
Both dates are absolute. Calendar days, not business days. No extensions for weekends, holidays, financing delays, or inspections. The only exception is a federally-declared disaster area (Rev. Proc. 2018-58).
There's also a secondary rule: if your federal tax return for the year of the exchange is due before Day 180 and you haven't filed an extension, the exchange must complete by the earlier due date.
See the 1031 exchange timeline pillar for a visual breakdown.
Identification rules
Code: Treasury Reg. §1.1031(k)-1(c). You must use one of three identification methods:
3-property rule
Identify up to 3 properties regardless of value. Most common choice.
200% rule
Identify any number of properties as long as their combined fair market value is ≤ 200% of the relinquished property's sale price.
95% rule
Identify any number of properties of any value, but you must close on properties representing ≥ 95% of the total identified value. Very rarely used — the closing requirement creates too much risk.
Properties must be identified by street address, legal description, or distinguishable name — not by vague reference like “a property in Dallas.” Identification must be in writing, signed, delivered to the QI (not your agent), and received by the QI on or before Day 45.
Equal or greater rule
To defer 100% of the gain, the replacement property must have:
- Equal or greater purchase price (compared to net sale price of relinquished)
- Equal or greater equity
- Equal or greater debt (or offset debt reduction with fresh cash)
Falling short in any of these three creates taxable boot. Partial exchanges are legal — you accept tax on the boot portion and defer the rest.
Qualified intermediary rule
Code: Treasury Reg. §1.1031(k)-1(g)(4). A qualified intermediary must hold the exchange funds and facilitate the mechanics. “Disqualified persons” cannot serve as QI:
- Your agent within the past 2 years (CPA, attorney, real estate agent, broker, employee)
- Your family members (spouse, siblings, ancestors, descendants)
- Any entity you or your family controls more than 10% of
See the QI pillar for the full analysis.
Constructive receipt
If you have the legal right or practical ability to access the exchange funds at any point between the sale and purchase, the IRS considers you to have received the money and the exchange is disqualified.
Common traps:
- Sale proceeds wired to your bank account “just to hold” before going to the QI
- Funds parked in your attorney's trust account with your signature authority
- Personal guaranties that allow you to pull funds
- Escrow arrangements where you can instruct release
Always wire directly from closing to the QI's segregated exchange account. Never let the funds touch anything you control.
Boot and partial exchange
Boot is any non-like-kind property or value received in the exchange. Three types:
- Cash boot: Cash walked away with at closing
- Mortgage boot: Debt reduction (old mortgage > new mortgage)
- Other property boot: Non-like-kind property received as part of the trade
Boot is taxable in the year of the exchange, up to the amount of realized gain. You don't lose 1031 treatment on the non-boot portion — this is called a partial exchange.
Run boot scenarios on the 1031 exchange calculator.
Reporting: Form 8824
The exchange is reported on IRS Form 8824, filed with your federal tax return for the year of the exchange. Your CPA calculates:
- The deferred gain
- The recognized gain (if any boot)
- The new basis in the replacement property
- The carryover of depreciation holding period and deductions
The QI typically provides a closing statement and basic exchange details; the actual tax calculations are the CPA's work.
What changed for 2026
No structural changes to 1031 for 2026. The rules above have been stable since the 2017 TCJA removed personal property. Several points to watch:
- Federal disaster declarations have been common in 2024-2026 (wildfires, hurricanes) and have triggered automatic 45/180 extensions for properties in affected zones. Rev. Proc. 2018-58 governs these extensions. Always check the IRS disaster relief page if you're in an affected area.
- California clawback (FTB 3840) reporting continues indefinitely for CA-sourced exchanges moved out of state.
- Capital gains rate thresholds adjust slightly with inflation each year — check your bracket on the capital gains calculator.
- Periodic policy discussion about capping or eliminating 1031 continues. Nothing has passed in the current legislative session. Not expected to change in 2026.
Frequently asked questions
Can I do a 1031 exchange on my primary residence?
No. Section 1031 only covers property held for investment or business use. The common workaround is converting the home to a genuine rental first — most advisors want to see roughly two years of rental use before exchanging. Primary residences have their own benefit anyway: the Section 121 exclusion ($250k single / $500k married) on sale of your home.
Can I sell one property and buy multiple properties?
Yes. You can identify up to 3 replacement properties regardless of value, or more under the 200% rule (combined value up to twice what you sold). Splitting one large sale into several rentals across different markets is one of the most common exchange patterns.
What happens if I miss the 45-day identification deadline?
The exchange fails — entirely. There is no extension, no grace period, and no partial credit. Your QI returns the proceeds and the full gain becomes taxable in the year of sale. This is why replacement-property research should start before you list, not after you close.
How long do I have to hold the new property afterward?
The statute sets no fixed period — the IRS tests whether you genuinely held it for investment. Most practitioners treat 1–2 years of investment use (with tax returns reflecting it) as the safe pattern. Related-party exchanges are the exception, with an explicit 2-year requirement. More detail in the holding period guide.
Is a 1031 exchange worth it, or should I just pay the tax?
Run the math: combined federal capital gains, depreciation recapture, NIIT, and state tax commonly reach 30–40% of the gain — estimate yours here. It's not worth it when the gain is small, when you need the cash, or when you'd buy a bad property just to beat the deadline. Sometimes paying the tax is the right answer, and a good QI will tell you so.
Can I do a 1031 exchange across state lines?
Yes — any U.S. investment real estate for any other, in any state. See the state-by-state tax rate table for what you'd be deferring. The one trap: California's clawback follows deferred gains out of the state.
Questions about a specific rule?
Every exchange has edge cases the rules don't cleanly cover. I'll walk through yours on a 30-minute call.
See If I Qualify