Section 1031 like-kind exchanges remain one of the few ways to defer tax on appreciated business or investment real estate. The IRS tax tip — still current in 2026 — is simple: exchange real property held for business or investment solely for other business or investment real property of the same type or "like-kind," and you generally do not recognize gain or loss at exchange. Personal-use property does not qualify.
What Qualifies
- Real property only. After the Tax Cuts and Jobs Act, like-kind treatment applies only to real property. Exchanges of equipment, vehicles, or artwork no longer qualify.
- Business or investment use on both sides. You must have held the relinquished property for business/investment and acquire replacement property for business/investment. Swapping a rental building for a NNN retail center qualifies; swapping a primary residence does not.
- Like-kind is broad for real estate. Improved or unimproved, fee interest for leasehold (generally 30+ years) — the IRS treats most real-property-for-real-property swaps as like-kind. In 2025 guidance, the IRS confirmed that using relinquished proceeds to build improvements on replacement property can qualify under Rev. Proc. 2004-51 principles where ownership indicia are timely.
The Timeline You Must Meet
A deferred exchange uses a qualified intermediary and two hard deadlines:
- 45 days to identify. From the date you transfer the relinquished property, you have 45 calendar days to identify potential replacement properties in writing to the intermediary (3-property or 200% rules apply).
- 180 days to close. You must receive the replacement property within 180 calendar days after transfer (or by the due date of the return for the year of transfer, whichever is earlier, with extension if the return is extended).
Miss either deadline and the exchange fails — gain is recognized. The IRS is strict on calendar days, not business days, and extensions for disasters are narrow.
Basis and Gain Deferral Math
Gain is deferred, not eliminated, by shifting basis to the replacement property. Boot — cash, debt relief, or non-like-kind property received — is taxable to the extent of realized gain. Sophisticated investors pair 1031 deferral with Qualified Opportunity Zone (QOZ) strategies: 1031 defers tax on existing real estate gains while QOZ defers and potentially excludes gains on other assets through 2026 — but the QOZ deferral window closes Dec 31, 2026, while 1031 continues.
Simplify Your Financial Management
1031 exchanges turn a sale into a basis transfer that must be traceable. Beancount.io keeps relinquished, intermediary, and replacement postings version-controlled — so the gain you deferred and the basis you carry reconcile from closing statement to depreciation schedule. Get started for free and exchange without surprise audits.