The 1031 Exchange Investor Checklist

Phase 1 — Before You List (2–4 weeks out)

• Confirm the property qualifies. Held for investment or productive use. Not a primary residence. Not fix-and-flip inventory. Not foreign property.
• Estimate your tax exposure. Use the calculator at leahbadach.com/1031-exchange-calculator. If your tax savings exceed $20k, a 1031 almost certainly makes sense.
• Engage a qualified intermediary. At least 2 weeks before closing. A QI is not optional — it's required by IRS regulation.
• Verify the QI is qualified. CES designation, segregated accounts, fidelity bond, E&O insurance. Ask for a certificate of insurance in your name.
• Have your CPA in the loop. They'll calculate your new basis and file Form 8824 post-exchange.
• Start sourcing replacement properties. Begin touring and shortlisting before you list your sale. The 45-day clock is merciless.

Phase 2 — Pre-Closing (1–2 weeks out)

• Insert assignment language into your sale contract. Your QI provides the standard clause. Have your attorney review.
• Sign the exchange agreement with your QI. This authorizes the QI to act as seller of record and hold the proceeds.
• Confirm wire instructions. Proceeds must wire directly from the title company to the QI's segregated exchange account. Any routing through your account voids the exchange.
• Complete financing pre-approval on replacement candidates. Don't wait until after Day 0 to start mortgage work.
• Confirm your QI's contact info for Day 0. You may need to reach them on closing day with last-minute questions.

Phase 3 — Day 0: Sale Closing

• Sign closing documents as usual. The QI is assigned as the seller for tax purposes.
• Confirm funds wire to QI's exchange account. Get confirmation in writing.
• Do NOT take custody of any funds. Not for a minute, not for a day, not “just to redirect.” Any constructive receipt voids the exchange.
• Record Day 0. Today is the start of both the 45-day and 180-day clocks.
• Calculate Day 45 and Day 180 on a calendar. Put them in your calendar with alerts.

Phase 4 — Days 1–44: Identification Window

• Tour replacement candidates actively. Aim for 2–3 strong options, not just one.
• Go under contract on your top choice if possible. Earlier the better.
• Do not revise the relinquished sale. Changes post-closing can trigger constructive receipt issues.
• Keep your QI informed. They need to know which properties you're considering.
• Plan your identification rule. 3-property rule (most common), 200% rule, or 95% rule.

Phase 5 — Day 45: Identification Deadline

• Deliver written identification to QI before midnight. Email, fax, or overnight courier with delivery confirmation.
• Include unambiguous property identification. Street address, legal description, or clearly distinguishable name.
• Have the taxpayer's signature on the identification. Spouse's signature if joint filer.
• Keep delivery proof. Email delivery receipt or courier signature. You'll need this for audit defense.

Phase 6 — Days 45–179: Exchange Period

• Finalize contract on your top identified property. If your first choice falls through, you can only close on properties from your identification list.
• Complete due diligence. Inspections, appraisal, title, environmental (for commercial).
• Confirm financing closes before Day 180. Build in 14+ days of buffer. Lenders often underestimate timelines.
• Coordinate closing date with QI. QI needs 2–5 business days lead time to prepare wire instructions.
• Check the equal-or-greater rule. Replacement purchase price ≥ sale price. Replacement equity ≥ original equity. Replacement debt ≥ original debt (or offset with fresh cash).

Phase 7 — Day 180 or Earlier: Replacement Closing

• QI wires funds to closing. You sign the closing docs; the QI is assigned as buyer for tax purposes.
• Take title to the replacement property. In the same name as you sold (or a disregarded entity for tax purposes).
• Get closing statement. Retain for your tax return and audit defense.
• Confirm exchange is closed. QI will provide a final exchange summary.

Phase 8 — Post-Exchange

• Provide exchange documents to your CPA. Closing statements from both sale and replacement, the exchange agreement, the identification letter, and the QI's final summary.
• File IRS Form 8824 with your tax return. Reports the exchange, calculates new basis, and documents any boot.
• State-specific filings. California requires annual FTB 3840 if you exchanged out of state. Check your state's rules.
• Track the new basis and carryover depreciation. Your CPA calculates; you retain the records.
• Save all records permanently. The exchange basis travels with the property indefinitely.

The Most Common Reasons Exchanges Fail

1. Taxpayer closes the sale before engaging a QI. Unfixable. Engage the QI first, always.
2. Taxpayer takes constructive receipt. Funds flowing through any account you control voids the exchange.
3. Missing the 45-day identification. Start sourcing replacements before listing your sale.
4. Missing the 180-day closing. Build in buffer; don't trust lenders to be on time.
5. Using a disqualified person as QI. Your CPA, attorney, or agent can't be your QI.
6. Buying down (replacement cheaper than sale). Creates taxable boot.
7. Debt down without offsetting cash. Mortgage boot is the silent tax killer.