The Step-by-Step Process
- Engage a Qualified Intermediary BEFORE closing. QI must hold sale proceeds — you cannot touch the money or the exchange fails. Engage QI before sale closing. We refer to QIs we've worked with.
- Close the relinquished (sold) property. Sale proceeds wire directly to QI's escrow account. Day 0 of the 45-day clock starts at this closing.
- Identify replacement property within 45 days. Written identification to QI. Three options: 3-property rule (any 3 properties), 200% rule (any number, total FMV ≤200% of relinquished), 95% rule (must close 95% of identified).
- Negotiate + go under contract. Replacement property must be 'like-kind' (any US investment real estate works — strict definition is loose for real estate). Cannot be primary residence.
- Close within 180 days of relinquished sale. Hard deadline. QI wires funds to closing. If you close 1 day late, the exchange fails and the entire gain becomes taxable.
- File IRS Form 8824 with that year's tax return. Reports the exchange. Don't miss this — preserves the deferral. CPA familiar with 1031 strongly recommended.
Key Things to Know
'Like-kind' is broader than it sounds
Any US investment real estate qualifies for any other US investment real estate. 2-fam in Queens → SFR in Long Island works. 2-fam → commercial works. Even 2-fam → vacant land works.
Boot is taxed
If your replacement property is cheaper than the sold one, the difference (cash 'boot') is taxed at capital-gains rates. Plan to either roll into more expensive property or accept partial tax.
Reverse exchanges are possible but harder
Buy first, sell later. Requires QI to hold replacement property for up to 180 days. More expensive QI fees. Used when the deal you want appears before yours sells.
Multi-asset 1031 can swap several properties
Sell 3 small properties → buy 1 larger one (or vice versa). Aggregation rules apply. Useful for portfolio consolidation.
DST for passive 1031
Delaware Statutory Trust shares qualify as 1031 replacement. Passive ownership of large commercial properties. 5–7% typical yield. Used by retiring landlords.
State taxes follow federal
NY State recognizes 1031 deferral. NYC does too. But some states (CA notably) have their own rules — talk to CPA.
Frequently Asked Questions
Any US investment-grade real estate qualifies for any other US investment-grade real estate. Single-family, multi-family, commercial, retail, industrial, vacant land, leasehold interests — all interchangeable. Cannot be primary residence or fix-and-flip.
Yes — both are investment real estate. As long as you don't owner-occupy the LI single-family, the exchange works.
$800–$1,500 for standard exchange; $2,500+ for reverse exchange. Coordinated with closing attorneys.
Yes — there's no limit. Investors do 'forever 1031' to defer indefinitely. Heirs receive stepped-up basis, eliminating the deferred gain entirely. This is one of the most powerful wealth-building tools in US real estate.
Exchange fails. Full capital gains owed in the year of relinquished sale. Plan for 30+ day buffer; we identify backup properties at the 45-day mark just in case.
Related Resources
Need personal guidance on 1031 exchanges?
Nitin Gadura, NYS Salesperson #10401383405. 7+ years experience, $100M+ closed, multilingual. Free consultation.
📞 Call (917) 705-0132