Section 1031 after the real property limit: eligibility and timing checklist

Reviewed 2026-09-15 · AI-assisted draft and editing; sources and limitations remain visible for independent review.

Answer: Since 2018 the provision reaches real property only. Section 1031(a)(1) defers gain or loss on an exchange of real property held for productive use in a trade or business or for investment for real property of like kind to be held for either of those purposes, and section 1031(a)(2) removes real property held primarily for sale. The amendment that narrowed it applies to exchanges completed after December 31, 2017, subject to a transition rule for exchanges where the relinquished property was disposed of, or the replacement property received, on or before that date. What counts as real property is now defined by regulation rather than by state law alone: regulation section 1.1031(a)-3 defines it as land and improvements to land, unsevered natural products of land, and water and air space superjacent to land, with improvements meaning inherently permanent structures and their structural components, and that regulation applies to exchanges beginning after December 2, 2020. Timing is statutory and unforgiving. Section 1031(a)(3) treats replacement property as not like kind unless it is identified within 45 days after the transfer of the relinquished property and received before the earlier of the 180th day after that transfer or the due date, including extensions, of the return for the year of that transfer. The identification and exchange periods are conditions, not deadlines a taxpayer can be advised to meet; the practical work is documentary.

Ask Taxterity about your own tax issue

Scope

Jurisdiction: United States — federal

Tax periods: Exchanges completed after 2017, Exchanges beginning after 2020-12-02, 2025 returns (Form 8824 instructions)

Assumptions

• Both the relinquished and the replacement property are real property located in the United States, and the taxpayer is not exchanging property held primarily for sale.
• The exchange is a deferred exchange in which the taxpayer transfers the relinquished property before receiving the replacement property.
• The question is eligibility, timing and documentation, not the computation of recognized gain, basis, or depreciation of the replacement property.

Exclusions

• State and local tax treatment, including state withholding on real property transfers and state clawback rules.
• Exchanges of property held outside the United States, which section 1031(h) treats as not of like kind to domestic property.
• Reverse and improvement exchange structures relying on parking arrangements, which raise separate issues not analyzed here.
• The computation of realized and recognized gain, basis allocation, and depreciation of replacement property after the exchange.

Gate 1. Is the property the kind section 1031 still reaches?

Three questions, in order. Is it real property as the regulation defines it? Regulation section 1.1031(a)-3(a)(1) covers land and improvements to land, unsevered natural products of land, and water and air space superjacent to land, and treats intangible interests in such property and property that is real property under state or local law as real property for this purpose. Paragraph (a)(2)(i) defines improvements to land as inherently permanent structures and their structural components, and paragraph (a)(2)(ii)(A) defines an inherently permanent structure as a building or other structure that is a distinct asset, permanently affixed to real property, and that will ordinarily remain affixed for an indefinite period, with affixation treated as permanent if it is reasonably expected to last indefinitely on all the facts.

Was it held for productive use in a trade or business or for investment, and will the replacement property be held for one of those purposes? That is a holding-purpose question about the taxpayer, evidenced by use, by how the property was reported, and by what the taxpayer does afterwards. And is it disqualified by section 1031(a)(2) as real property held primarily for sale? A single parcel can move between categories over time, which is why the file should record the purpose at each end of the exchange rather than asserting it once.

Two further disqualifiers sit outside subsection (a) and are easy to miss because they are not in the definition. The Instructions for Form 8824 state that section 1031 does not apply where the property given up was used solely as the taxpayer's personal residence at the time of the exchange, and separately that it does not apply to certain exchanges involving tax-exempt use property subject to a lease, pointing to section 470(e)(4). Neither is analyzed here, but both belong on the intake sheet before any date is counted.

Gate 2. The two periods, and the date that actually ends the second one

Regulation section 1.1031(k)-1(b)(2)(i) starts the identification period on the date the taxpayer transfers the relinquished property and ends it at midnight on the 45th day after. Paragraph (b)(2)(ii) starts the exchange period on the same date and ends it at midnight on the earlier of the 180th day after, or the due date including extensions for the taxpayer's return for the taxable year in which the transfer occurs. That second limb is the one that surprises people: a transfer late in a calendar year can shorten the exchange period well below 180 days unless the return is extended, and the regulation's own example works exactly that case.

Two counting rules matter. Paragraph (b)(2)(iii) provides that where more than one relinquished property is transferred as part of the same exchange on different dates, both periods run from the earliest of those dates. Paragraph (b)(2)(iv) provides that property is transferred when it is disposed of within the meaning of section 1001(a), which is not necessarily the recording date or the date funds move. Fix the transfer date from the substance of the disposition and write down how it was determined.

Gate 3. Identification is a documentary act, not an intention

Regulation section 1.1031(k)-1(c)(2) requires that replacement property be designated as such in a written document signed by the taxpayer and hand delivered, mailed, telecopied or otherwise sent before the end of the identification period to either the person obligated to transfer the replacement property, whether or not that person is a disqualified person, or any other person involved in the exchange other than the taxpayer or a disqualified person. The regulation names parties to the exchange, an intermediary, an escrow agent and a title company as examples of persons involved, and treats an identification contained in a written exchange agreement signed by all parties before the period ends as satisfying the requirement. Paragraph (c)(1) adds that any replacement property actually received before the period ends is treated as identified.

Paragraph (c)(3) requires an unambiguous description, and says real property is generally described unambiguously by a legal description, street address, or distinguishable name. Paragraph (c)(4)(i) then caps the count: either three properties without regard to value, the three-property rule, or any number of properties whose aggregate fair market value at the end of the identification period does not exceed 200 percent of the aggregate fair market value of all relinquished properties when transferred, the 200-percent rule. Over-identify, and paragraph (c)(4)(ii) treats the taxpayer as having identified nothing, subject to two saves: property received before the identification period ends, and property identified in time and received before the exchange period ends where the taxpayer receives identified replacement property worth at least 95 percent of all identified replacement property, the 95-percent rule.

Gate 4. Who may hold the money, and who may not

Regulation section 1.1031(k)-1(g)(1) sets out four safe harbors whose use results in a determination that the taxpayer is not in actual or constructive receipt of money or other property. More than one may be used in the same exchange, but the terms and conditions of each must be separately satisfied. They are security or guarantee arrangements under paragraph (g)(2), qualified escrow accounts and qualified trusts under paragraph (g)(3), qualified intermediaries under paragraph (g)(4), and interest or growth factors under paragraph (g)(5). Each of the first three stops applying once the taxpayer has an immediate ability or unrestricted right to reach the funds, and paragraph (g)(6) requires the governing agreement to limit those rights expressly.

The disqualified person rules in paragraph (k) decide who cannot serve. Paragraph (k)(2) treats as an agent of the taxpayer anyone who has acted as the taxpayer's employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the two-year period ending on the date of the transfer of the first relinquished property, while disregarding services performed for the taxpayer on prior section 1031 exchanges and routine financial, title insurance, escrow or trust services by a financial institution, title insurance company or escrow company. Paragraph (k)(3) adds persons related under section 267(b) or 707(b) with 10 percent substituted for 50 percent. A taxpayer's long-standing accountant or real estate broker is therefore usually disqualified, and that is checked before engagement, not after.

Gate 5. Boot, liabilities, and the recapture that survives

Section 1031(b) recognizes gain to the extent of money and the fair market value of other property received, and section 1031(c) denies a loss in the same situation. Section 1031(d) sets substituted basis and provides that where another party assumed a liability of the taxpayer, as determined under section 357(d), the assumption is considered money received. Mortgage relief is therefore boot even though no cash changes hands, which is why a debt-down exchange recognizes gain that a purely cash analysis misses.

Depreciation recapture is not switched off by the exchange, it is capped. Section 1245(b)(4) limits the ordinary income taken into account where gain is not recognized in whole or in part under section 1031 or 1033 to the sum of the gain recognized on the disposition, determined without regard to section 1245, plus the fair market value of property acquired that is not section 1245 property and not already counted. The Instructions for Form 8824 carry this into the return: Part III line 20 reports gain recognized on boot, and line 21 computes ordinary income recapture under sections 1245 and 1250 within the exchange. Where a relinquished building carries section 1245 components, the interaction is worth modeling before closing.

Gate 6. The exposure that outlives the closing

Section 1031(f)(1) turns off nonrecognition retroactively where a taxpayer exchanges property with a related person and, before the date two years after the last transfer that was part of the exchange, either the related person disposes of the property transferred to it or the taxpayer disposes of the like-kind property received from the related person. The gain or loss is then taken into account as of the date of that later disposition, not the date of the exchange. Section 1031(f)(2) excepts dispositions after the death of either party, dispositions in a compulsory or involuntary conversion where the exchange preceded the threat of conversion, and dispositions established to the Secretary's satisfaction not to have had federal income tax avoidance as a principal purpose.

Two provisions close the obvious routes around it. Section 1031(f)(4) disapplies the section to any exchange that is part of a transaction or series of transactions structured to avoid the purposes of subsection (f). Section 1031(g) suspends the running of the two-year period for any period during which the holder's risk of loss is substantially diminished, for example by holding a put or by another person holding a right to acquire the property. The Instructions for Form 8824 reflect the continuing obligation by requiring the form to be filed for each of the two years following the year of a related-party exchange.

A short timeline to write down, and where to take it

Record, with a source for each: the transfer date of each relinquished property and how it was determined under section 1001(a); the earliest such date if there is more than one; the 45th day and the 180th day counted from it; the taxpayer's return due date for that year and whether an extension is planned; the date, recipient, and method of delivery of the identification notice, with the signed document attached; the count of identified properties and which rule they satisfy; the identity of the intermediary or escrow holder and the disqualified-person screen for each; the closing date of each replacement property; all boot and liability changes on both sides; and, if a related person is involved, a diary entry two years out.

This page differs from the sibling page Selling depreciated property: a section 1245, 1250 and 1231 issue map, which characterizes gain that is recognized rather than deferred; the two meet at boot and at section 1245(b)(4). When the facts are fixed, ask Taxterity a research question about the identification or timing issue you actually face, or have it prepare a Federal Tax Memo on the exchange, and then check every date and citation against the statute and the regulation yourself.

Related research

• Section 179 or bonus depreciation: pinning the rule to the acquisition date
• Placed in service: the evidence that proves readiness and availability
• Cost segregation studies: what the IRS audit guide expects you to support
• Selling depreciated property: a section 1245, 1250 and 1231 issue map

Official sources

1. 26 U.S.C. § 1031 — Exchange of real property held for productive use or investment — § 1031(a)(1)-(a)(3), (b), (c), (d), (f)(1)-(f)(4), (g); Effective Date of 2017 Amendment note, Pub. L. 115-97 § 13303(c)(1)-(2), exchanges completed after December 31, 2017 and the transition rule
2. 26 CFR 1.1031(a)-3 — Definition of real property — Paragraph (a)(1) real property; (a)(2)(i) improvements to land; (a)(2)(ii)(A) inherently permanent structure and the permanence standard; paragraph (c) applicability date, exchanges beginning after December 2, 2020
3. 26 CFR 1.1031(k)-1 — Treatment of deferred exchanges — Paragraph (b)(1)-(b)(2) identification and exchange periods, including (b)(2)(iii) earliest transfer date and (b)(2)(iv) transfer within the meaning of section 1001(a), and the worked example in (b)(3)
4. 26 CFR 1.1031(k)-1 — Treatment of deferred exchanges — Paragraph (c)(1)-(c)(4): manner of identification, unambiguous description, the 3-property and 200-percent rules, the consequence of over-identification, and the 95-percent rule in (c)(4)(ii)(B)
5. 26 CFR 1.1031(k)-1 — Treatment of deferred exchanges — Paragraph (g)(1)-(g)(4) and (g)(6) safe harbors and the limits on the taxpayer's rights; paragraph (k)(1)-(k)(4) definition of disqualified person, including the two-year agent lookback in (k)(2)
6. IRS Instructions for Form 8824 (2025), Like-Kind Exchanges — Like-Kind Exchanges, Section 1031 regulations, and Definition of Real Property; Deferred Exchanges (45-day and 180-day rules, referring to Line 5 and Line 6); Property Used as Home; Line 7; Line 20; Line 21
7. 26 U.S.C. § 1245 — Gain from dispositions of certain depreciable property — § 1245(b)(4), limitation on ordinary income where gain is not recognized in whole or in part under section 1031 or 1033

Limitations

• This is an eligibility and timing framework. It does not confirm that any exchange qualifies, compute recognized gain or basis, or supply legal advice about a transaction in progress.
• The periods described are statutory and regulatory conditions of nonrecognition, stated here as rules with their sources. Whether an extension is filed, and therefore when the exchange period ends, is a fact about the taxpayer's return that this page cannot supply.
• Whether property is held for productive use in a trade or business or for investment, and whether it is held primarily for sale, are facts determined on all the circumstances. Regulation section 1.1031(a)-3 defines real property but does not answer the holding-purpose question.
• Reverse exchanges, improvement exchanges, and exchanges involving partnership interests or entity-level restructuring raise issues outside this page, as do exchanges of property held outside the United States.
• The Form 8824 instructions cited are for use in preparing 2025 returns and summarize the law for reporting purposes; the statute and the regulations are the operative authority. Section 1031 itself was read on the current preliminary United States Code page on 2026-09-15 and carries no amendment by any Public Law of the 119th Congress, so the 2017 narrowing remains the operative change.