The 1031 Exchange Rules in 2026, Start to Finish

A 1031 exchange lets an investor sell one investment property, buy another, and defer the capital gains tax that would otherwise fall due. The mechanism has been in the tax code since 1921 and survived the 2017 overhaul that removed it for everything except real property. In 2026 it works exactly as it did in 2025.

What follows is the complete rulebook as it currently stands, in the order the rules actually bite.

Rule one: both properties must be held for investment

The statute says like-kind property held for productive use in a trade or business or for investment. In practice almost all US real property is like-kind to almost all other US real property: an apartment building for raw land, a strip mall for a rental house, a farm for a warehouse. What matters is not the type of property but the purpose you held it for.

That is why a primary residence does not qualify, why property held by a dealer for resale does not qualify, and why the intent behind a purchase can be examined years later.

Rule two: you may not touch the money

This is the condition the whole deferral rests on. If you take actual or constructive receipt of the sale proceeds, even briefly, the exchange is dead and the gain is taxable. Constructive receipt is broad: the right to draw on the funds is enough, whether or not you do.

So a qualified intermediary holds the proceeds between the two closings. The intermediary is not optional and cannot be your attorney, your accountant, your broker or your employee if any of them has served you in that capacity within the previous two years.

Rule three: 45 days to identify

From the day your sale closes, you have 45 calendar days to identify replacement property in writing. Not business days. No extension for weekends or holidays. The identification must be signed, delivered to your intermediary, and must describe the property unambiguously.

You may identify under one of three rules: up to three properties of any value, or any number of properties whose combined value does not exceed 200% of what you sold, or any number at all provided you actually acquire 95% of the value identified.

Rule four: 180 days to close

The replacement purchase must complete within 180 calendar days of the sale, or by the due date of your tax return for the year of the sale, whichever comes first. That second clause catches people who sell late in the year and do not file an extension.

Rule five: match or exceed on both value and debt

To defer the whole gain, the replacement must cost at least as much as the relinquished property sold for, and you must carry at least as much debt or make up the difference in cash. Fall short on either and the shortfall is boot, which is taxable now.

What is being proposed, and what it would do

Three proposals have circulated in recent budget cycles. None has passed, and none is law.

• A cap on deferred gain, most often floated at $500,000 per taxpayer per year. It would leave small exchanges untouched and end the large ones.
• Removing the step-up in basis at death, which would convert deferral into delay rather than potential elimination.
• Narrowing what counts as held for investment, which would mostly affect short-hold and vacation property.

Proposals are not rules. Investors who have restructured around a rumoured cap have generally regretted it, and the deadline pressure of an exchange is a poor place to be making bets on legislation.

The order these rules bite in

1. Engage an intermediary before your sale closes. After it closes, nothing can be fixed.
2. Close the sale. Day zero. The clock starts on the day of closing, not the day of contract.
3. Identify in writing by day 45, delivered to the intermediary.
4. Close on the replacement by day 180, or your return due date if earlier.
5. File Form 8824 with that year's return, whether or not any tax is due.

Miss any of them and the deferral fails. Follow all of them and the tax waits until you sell without exchanging, which may be never.