How Does a 1031 Exchange Work?
The complete step-by-step guide to deferring capital gains tax on your investment property sale
A 1031 exchange lets you sell an investment property and reinvest the proceeds without paying capital gains tax—provided you follow IRS rules and timelines. Here's exactly how it works.
The 1031 Exchange Process Explained
Four stages. Each one critical. We guide you through all of them.
Timeline: Contact us BEFORE closing on your sale
- Engage Simple 1031 as your Qualified Intermediary
- We prepare all exchange documentation
- Sale proceeds go directly to our secure, segregated escrow
- You never touch the funds (IRS requirement)
⚠️ Important: If you receive the proceeds, the exchange is invalidated. This step is critical.
Clock starts: Day of your property sale closing
- Identify up to 3 potential replacement properties
- Or use the 200% rule (identify more properties worth up to 200% of sale price)
- Submit identification in writing to Simple 1031
💡 Pro Tip: Identify at least 2 backup properties in case your first choice falls through.
Deadline: 180 days from sale closing
- Negotiate and finalize purchase of your replacement property
- Simple 1031 wires funds directly to the closing
- Complete purchase within the 180-day window
✅ Result: Capital gains tax is deferred. You keep 100% of your equity working for you.
STEP 4: AFTER THE EXCHANGE
- Own your new investment property with deferred tax basis
- Defer taxes until you sell—or do another 1031 exchange
- Continue building wealth with pre-tax dollars compounding for you
What You Need to Qualify
Six requirements. We help you verify every one.
45-Day Rule
Identify replacement properties within 45 calendar days of your sale closing.
180-Day Rule
Close on replacement property within 180 calendar days of your sale.
Identification Rules
Replacement property must equal or exceed your relinquished property's value.
Investment Property
Must be held for investment or business use—not personal residence.
Like-Kind Property
Exchange any investment real estate for any other U.S. investment real estate.
Qualified Intermediary
You cannot touch the proceeds. Simple 1031 holds and manages the funds.
Bonded and insured by Liberty Mutual to meet all state and federal requirements.
Common Questions About the 1031 Process
Your exchange fails and you'll owe capital gains tax on the full sale. That's why working with an experienced QI matters—we send reminders and help you stay on track with every deadline.
Yes. You can identify up to 3 properties regardless of value, or use the 200% rule to identify more. You can also ultimately purchase multiple replacement properties.
You'll pay tax on the difference (called "boot"). To fully defer all taxes, your replacement must be equal or greater in value than your relinquished property.
It defers them. Taxes are due when you eventually sell without doing another exchange. Many investors continue exchanging indefinitely, and heirs can receive a stepped-up basis—potentially eliminating the deferred tax entirely.
Same day. Once you engage us, we prepare all documentation immediately. Just contact us before you close on your sale—that's the only hard requirement.
Ready to See if You Qualify?
Talk to a specialist—free, no obligation.
Or call us directly: (725) 224-5008