1031 Exchange Checklist

Phase 1: Pre-Sale Preparation (Before Day 0)

☐ Confirm the property qualifies (held for investment or business use, not personal residence).
☐ Engage a Qualified Intermediary (QI) before closing the sale.
☐ Consult with a tax advisor or CPA to review strategy and implications.
☐ Estimate replacement property value targets (equal or greater value to defer full tax).
☐ Add exchange cooperation language into the purchase and sale agreement.

Phase 2: Sale of Relinquished Property (Day 0)

☐ Close on the relinquished property.
☐ Ensure proceeds are transferred directly to the QI (never touch the funds).
☐ Start the official 180-day exchange clock and 45-day identification clock.

Phase 3: Identification Period (Day 1–45)

☐ Identify potential replacement properties in writing.
☐ Submit identification letter to the QI by midnight of Day 45.
☐ Follow one of the IRS identification rules:
   ☐ 3-Property Rule (up to 3 properties, any value), OR
   ☐ 200% Rule (multiple properties, total ≤ 200% of relinquished value), OR
   ☐ 95% Rule (acquire 95% of identified value if exceeding limits).
☐ Verify properties are “like-kind” (broad for real estate, but still must qualify).
☐ Perform due diligence (inspections, financing feasibility, title checks).
⚠️ Critical: Missing the Day 45 identification deadline disqualifies the exchange.

Phase 4: Acquisition Period (Day 46–180)

☐ Enter into purchase agreement(s) for identified property(ies).
☐ Coordinate with QI to assign exchange rights to the purchase contract.
☐ Secure financing if needed (ensure structure doesn’t create taxable “boot”).
☐ Close on replacement property(ies) before Day 180.
☐ Ensure title is taken in the same taxpayer name as the relinquished property.

Phase 5: Financial Compliance Checks

☐ Reinvest all net proceeds from the sale.
☐ Purchase property of equal or greater value.
☐ Replace any debt paid off with equal or greater debt (or add cash).
☐ Avoid receiving “boot” (cash or non-like-kind property), or understand tax impact.

Phase 6: Documentation & Reporting

☐ Retain all exchange documents:
   ☐ Closing statements (HUD-1 or ALTA)
   ☐ QI agreements
   ☐ Identification letter
   ☐ Purchase contracts
☐ Report the exchange on IRS Form 8824 with your tax return.
☐ Coordinate with CPA for accurate reporting and basis calculations.

Common Pitfalls to Avoid

☐ Missing the 45-day or 180-day deadlines.
☐ Taking constructive receipt of funds.
☐ Improper identification format or late submission.
☐ Buying property not held for investment (e.g., primary residence too soon).
☐ Title mismatch between relinquished and replacement properties.

Optional Best Practices

☐ Start scouting replacement properties before selling.
☐ Identify backup properties in case the primary deal falls through.
☐ Build in extra time buffers—don’t aim for Day 180 closing.
☐ Work only with experienced QIs and exchange-savvy real estate professionals.