1031 Exchanges
Delayed 1031 Exchange
Sell first, then buy: the standard exchange structure. Your qualified intermediary must be in place before the sale of the relinquished property closes.
Exchange type
Delayed Exchange
Key deadlines
45-day identification and 180-day completion
Our role
Qualified intermediary (QI)
Last updated
What is a delayed 1031 exchange?
A delayed 1031 exchange is the most common type of like kind exchange: you sell the relinquished property first, then buy the replacement property within the deadlines. A qualified intermediary holds the sale proceeds so you never take receipt of the funds. You generally have 45 days from the sale closing to identify the replacement property in writing, and 180 days to close on it. The rules are strict, so confirm the details with your CPA, tax attorney, or qualified intermediary.
A delayed 1031 exchange, sometimes called a forward or Starker exchange, is the structure most Texas investors use. You sell the relinquished property, the proceeds go to a qualified intermediary, and you then acquire like kind replacement property within the IRS deadlines.
It works when your sale closes before your purchase and you can identify a replacement property quickly. The most important move happens before you sell: the qualified intermediary has to be in place before the relinquished property closes, because once you take receipt of the proceeds the exchange is generally blown.
When a delayed exchange makes sense
- Selling one investment property and buying another in Texas
- A clean sale-then-purchase timeline with no rush to close the purchase first
- You can identify candidate replacement properties within 45 days
- You want to defer gain and roll equity into a larger or better positioned property
When this structure can be risky
- You cannot find or identify a replacement property within 45 days
- Financing on the replacement property is not lined up and may not close by day 180
- You misunderstand the identification rules and over identify or under identify
- You need to close on the replacement before your sale closes (consider a reverse exchange instead)
How a delayed exchange works
-
Engage a qualified intermediary first
Set up the QI and exchange documents before the relinquished property closes. This step cannot be added after you receive the proceeds.
-
Sell the relinquished property
The sale closes and the 45-day and 180-day clocks both start. Proceeds go to the QI, not to you.
-
Identify replacement property (45 days)
Identify candidate replacement property in writing within 45 days, following the IRS identification rules.
-
Close on the replacement (180 days)
Acquire identified replacement property within 180 days of the sale closing, using the proceeds held by the QI.
-
Complete the exchange
The QI applies the exchange funds to the purchase and the replacement property is transferred to you.
The 45 day and 180 day rules
- The 45 day identification period and the 180 day completion period both start on the day the relinquished property sale closes, and they run at the same time.
- Identification must be in writing and is subject to IRS rules. Two common ones are the three property rule (identify up to three properties of any value) and the 200 percent rule (identify any number of properties as long as their total fair market value does not exceed 200 percent of the relinquished property value).
- Replacement property must be like kind real property held for investment or business use.
- You cannot take actual or constructive receipt of the proceeds. They are held by the qualified intermediary throughout the exchange.
- Deadlines are strict and are not extended for financing or closing delays. Confirm your specific facts with your CPA, tax attorney, or qualified intermediary.
Sources: IRS - Like-Kind Exchanges (Real Estate Tax Tips) , IRS - Instructions for Form 8824 (Like-Kind Exchanges)
Common delayed exchange mistakes
- Closing the sale before a qualified intermediary is in place
- Taking actual or constructive receipt of the sale proceeds
- Missing the 45 day identification window
- Using vague identification language or ignoring the identification rules
- Not lining up replacement property financing in time for the 180 day deadline
How Cedar Top helps Texas investors
Cedar Top Lending can act as your qualified intermediary on a delayed exchange, holding the exchange funds and preparing the exchange documents so you do not take receipt of the proceeds. We do not provide tax or legal advice, and we do not decide whether your transaction qualifies. That is for your CPA, tax attorney, and tax advisor.
- Act as your qualified intermediary and hold exchange funds
- Prepare exchange documents and coordinate with your closers
- Track the 45 day identification and 180 day completion deadlines
- Coordinate with your CPA, attorney, title company, and real estate agents
- Provide bridge or private financing on the replacement property when the deal calls for it, subject to underwriting
Related financing: Bridge Loans and New Construction Loans .
Set up your exchange before the relinquished property closes. Talk with Cedar Top about acting as your qualified intermediary and about financing the replacement property.
Delayed 1031 Exchange FAQs
When do the deadlines start?
Both the 45 day identification period and the 180 day completion period begin on the date the relinquished property sale closes. They run at the same time, so the 45 day window sits inside the 180 day window.
Can I touch the sale proceeds?
No. To preserve a 1031 exchange, the proceeds are held by the qualified intermediary, and you cannot take actual or constructive receipt of them. Confirm the specifics with your tax advisor.
When do I need to set up the qualified intermediary?
Before the relinquished property closes. The QI and exchange documents have to be in place before the sale, because once you receive the proceeds the exchange is generally lost.
How many replacement properties can I identify?
IRS rules limit identification. Two common ones are the three property rule and the 200 percent rule. Because the rules are technical, confirm how they apply to your situation with your CPA or tax attorney.
What is like kind property?
For real estate, like kind is broad: most real property held for investment or business use can be exchanged for other such real property. It does not have to be the same type of property. Your tax advisor can confirm whether a specific property qualifies.
Can Cedar Top help finance the replacement property?
Yes. Depending on the deal, Cedar Top may be able to provide bridge or private lending on the replacement property in Texas, subject to underwriting. We can also act as your qualified intermediary. We do not provide tax or legal advice.
What happens if I miss the 45 or 180 day deadline?
Missing a deadline generally causes the exchange to fail, which can make the gain taxable. The deadlines are not extended for financing or closing delays, so plan the timeline carefully with your advisors.
Start your Texas 1031 with Cedar Top
Tell us about your transaction and we will help you get set up. Remember to involve your CPA, attorney, and tax advisor.