1031 Exchange Checklist

Phase 1: Pre-Decision Checklist (Before Listing the Property)

The decisions made before the property goes on the market largely determine how the exchange unfolds. Reversing course after the sale contract is signed is expensive and sometimes impossible.

1. Confirm the property qualifies. The relinquished property must be held for productive use in a trade or business, or for investment — not primarily for personal use, resale (flips), or as inventory. Primary residences, vacation homes used more than the IRC §280A personal-use threshold, and property held in a dealer context do not qualify without careful structuring. See what qualifies for a 1031 exchange for the full eligibility table.
2. Verify the titleholder matches your plan. The taxpayer who sells must be the same taxpayer who buys the replacement. If the property is held in a partnership or multi-member LLC, individual partners cannot exchange out separately without a drop-and-swap restructure. Review LLC and partnership rules before the sale.
3. Run exchange vs. taxable sale math. Deferral is not always the right answer. If you need liquidity, want to diversify, or are near the end of your investment horizon, the tax cost of a sale may be worth it. Quantify both paths with real numbers before committing to the exchange track. The exchange vs. taxable sale guide walks through six scenarios where the taxable sale wins.
4. Identify passive activity loss exposure. If the property has generated suspended passive losses over the years, those losses do not release in a 1031 exchange — they carry over to the replacement property. A taxable sale (or strategic boot) would release them. Quantify the suspended PAL balance with your CPA before deciding. See passive activity losses and the 1031 exchange.
5. Assess estate planning implications. Properties held until death receive a stepped-up basis under IRC §1014, eliminating all deferred gain permanently. If your planning horizon extends to estate transfer and your estate is below the 2026 exemption of $15M (OBBBA permanent), continued deferral via exchange may be more valuable than selling. If your estate is large enough to have a federal estate tax exposure, the net-of-tax picture changes. Review your estate plan before deciding to exchange or sell.
6. Consider the replacement property pipeline. The 45-day identification window is rigid — it does not pause for slow markets or indecisive sellers. Before signing the sale contract, assess honestly whether you have two to three credible replacement property targets already identified. If the pipeline is thin, a DST sponsor may be necessary as a backup or primary replacement.
7. Evaluate related-party risk. Buying from or selling to a related party (family member, majority-owned entity, business partner above 50% ownership) triggers the IRC §1031(f) two-year holding requirement and the risk of a retroactive exchange failure. Identify any related-party involvement before the transaction closes. Review related party rules.

Phase 2: Qualified Intermediary Selection Checklist

The QI must be in place before the sale closes and before the investor takes constructive receipt of proceeds. Selecting a QI after the fact — even one day after closing — disqualifies the exchange entirely. There is no cure.

1. Confirm the QI is not a disqualified person. Your attorney, CPA, broker, investment advisor, lender, or any party who has acted as your agent within the prior two years cannot serve as QI under Treas. Reg. §1.1031(k)-1(g)(4). Neither can a related party. The QI must be a true third party.
2. Review financial safety protocols. QIs hold your exchange funds in trust — typically for up to 180 days. Confirm: Are exchange proceeds held in a segregated, qualified escrow or trust? Does the QI carry a fidelity bond? What is the coverage limit? Is errors and omissions (E&O) insurance in place? QI insolvency during the exchange window is a real risk on large transactions.
3. Verify QI membership in FREA. Federation of Exchange Accommodators (FREA) members agree to professional standards including segregated accounts and minimum insurance requirements. Membership is not a guarantee of safety but is a meaningful baseline screen.
4. Confirm QI fee structure in writing. Fee ranges for standard exchanges are roughly $750–$2,500. Reverse exchanges or improvement exchanges with an Exchange Accommodation Titleholder (EAT) cost significantly more ($8,000–$20,000+). Confirm the fee schedule before signing the exchange agreement. See 1031 exchange costs and fees.
5. Execute the assignment of relinquished property rights before closing. The QI agreement must assign your rights under the sale contract to the QI before the sale closes. This is not optional — it is the legal mechanism that prevents constructive receipt of the proceeds.
6. Get the QI's wire instructions verified independently. Wire fraud targeting real estate transactions is common. Confirm the QI's wiring instructions directly by phone using a number you independently verified — not a number provided in an email.

For a deeper review of QI evaluation criteria and the 10 questions to ask before hiring, see the qualified intermediary selection guide.

Phase 3: 45-Day Identification Window Checklist

The 45-day identification clock starts the day the relinquished property closes — not the day you sign the purchase agreement or the day the QI receives funds. Day 45 is a hard deadline under IRC §1031(a)(3)(A). A midnight identification submitted on day 46 fails the exchange.

1. Identify under the correct rule. The default rule is the Three-Property Rule: you may identify up to three replacement properties without regard to value. Alternatively, use the 200% Rule (any number of properties, total FMV ≤ 200% of relinquished property value) or the 95% Rule (any number of properties if you actually acquire at least 95% of identified value). Most exchanges use the Three-Property Rule. See the identification rules guide for worked examples.
2. Identify backup properties, not just your primary target. If your primary replacement falls out of contract during the 180-day window, you cannot add new properties to the identified list — the window is closed. Identify two to three viable backups on day one, not when the primary deal collapses.
3. Have the identification letter ready before closing. Draft the identification letter in advance. It must be signed, in writing, and sent to the QI (or the seller of the replacement property, or any party involved in the exchange other than you or a disqualified person) before midnight on day 45. Email with a verifiable timestamp and a follow-up call is standard.
4. Include enough property description to identify it unambiguously. The identification must describe the property in a way a third party could identify — typically legal description, APN, or street address plus unit number. Vague descriptions ("a multifamily property in Phoenix") do not satisfy the requirement.
5. Document backup identification in writing at the same time. Include all backup properties in the same identification letter as your primary. Do not send a separate identification letter later — you cannot amend the original identification after day 45.
6. Consider a DST as an emergency backstop. If the replacement property pipeline is weak on day 40, DST sponsors can typically execute within days and require no 45-day identification beyond adding the DST interest to the identification letter. Having a DST sponsor pre-screened before the identification deadline prevents a forced failure. See DST guide.

Phase 4: Replacement Property Due Diligence Checklist

The 180-day acquisition deadline — running from the same closing date as the 45-day clock — rarely moves. During this window, you must complete due diligence, negotiate, finance, and close the replacement property. This checklist applies to direct replacement property; DST due diligence has its own structure (see DST guide).

1. Confirm replacement value meets or exceeds relinquished value. To fully defer all gain, the replacement property value must be equal to or greater than the net sale value (sale price minus selling costs). The replacement property calculator outputs the exact minimum value, equity, and debt required for full deferral given your specific sale terms.
2. Match or exceed the old debt. Reducing total debt — even if you reinvest all equity — creates mortgage boot equal to the net debt relief. That boot is taxable. If the replacement property carries less debt than the relinquished property, you must either take on more debt on the replacement side or make up the difference with additional equity. There is no workaround except paying the tax. See boot guide.
3. Verify the property is like-kind eligible. All real property held for investment or business use is like-kind to all other real property held for investment or business use. However: personal property (equipment, vehicles) is no longer eligible under TCJA; foreign property cannot be exchanged for domestic property; and certain structures like partnership interests and REITs are explicitly excluded even if real estate underlies them.
4. Review lease terms and rent roll carefully. A replacement property that looks solid on a pro forma may have short lease expirations, below-market rents, tenant credit concerns, or deferred maintenance that materially affects NOI. Request rent rolls, current leases, and maintenance logs. Rushing into a weak property to meet the 180-day deadline is one of the most common exchange mistakes.
5. Order a title search and confirm clean title. Title defects, undisclosed liens, or mechanic's liens from the prior owner's contractor work can surface at closing and create closing delays. On a hard 180-day deadline, a delayed closing from a correctable title issue is a serious risk. Order the title report early.
6. Confirm financing availability before making an offer. Lenders on replacement properties do not know or care about your 180-day deadline. If conventional financing is required, confirm pre-approval before committing to an acquisition. If timing is tight, bridge financing or hard money lending may be necessary to meet the deadline, with a permanent refinance after closing.
7. Review the environmental history of the property. Phase I environmental assessments take time and cost $2,000–$4,000. For commercial property, industrial land, or gas station/dry cleaning sites, an unexpected Phase II assessment can delay closing by weeks. Budget the time and have the environmental contingency removed before the deadline is at risk.
8. Coordinate closing dates across all parties. The QI, title company, and lender all need sufficient lead time. A replacement property that closes on day 179 requires flawless coordination. Build in a three-to-five business day buffer where possible.

Phase 5: Financial Planning Checklist (Before and After the Exchange)

The 1031 exchange is a tax deferral mechanism — not a financial plan. The planning questions that determine whether the deferred tax ever becomes a real benefit happen before and after the exchange, not during the closing process.

1. Reserve for boot tax if partial exchange is planned. If you intentionally plan to receive boot — to pull out liquidity or because a smaller replacement property is the right choice — set aside the expected federal and state tax liability from the proceeds before reinvesting the balance. The tax is due in the year of the exchange, not the year you ultimately sell the replacement property.
2. Update depreciation schedules with your CPA. The replacement property takes on a carryover basis from the relinquished property, not its purchase price. A property bought for $3M in an exchange may have a depreciable basis of $900,000 — dramatically lower annual depreciation than a $3M outright purchase. Model this before acquisition; it affects after-tax cash flow projections substantially.
3. Review suspended passive activity losses. If the exchange carried suspended PALs forward from the relinquished property, they remain attached to the replacement property's activity. Track the carryforward balance and identify the future event (taxable sale, death, or REPS qualification) that will eventually release them. Do not assume they disappear.
4. Assess state conformity and clawback exposure. All 50 states now conform to federal 1031 exchange treatment, but five states — California, Oregon, Montana, Massachusetts, and Idaho — maintain clawback provisions that require annual reporting if you sell a property located in those states and reinvest in a replacement property outside the state. If your relinquished property was in California, CA Form 3840 is required annually until the gain is recognized in a taxable sale. See state tax rules guide.
5. Document the exchange file completely. In the event of an IRS audit, your exchange file should include: the QI agreement and all amendments, the identification letter with proof of timely delivery, both closing statements (relinquished and replacement), proof that proceeds flowed through the QI and were never in your constructive receipt, and the replacement property deed. Keep this file permanently — the carryover basis is a permanent record that affects tax calculations decades later.
6. Confirm the replacement property address matches your estate plan. If the replacement property is in a different state than the relinquished property, trust and entity documents may need updating to reflect the new situs. Ancillary probate in the property's state may be required if the property is not inside a trust. Coordinate with your estate attorney after closing.

What to Bring to an Advisor Meeting

The most productive first meeting with a financial advisor who specializes in 1031 exchange planning is a decision-mapping conversation — not a product presentation. Come prepared with the documents, numbers, and questions that define your specific planning problem.

The best advisors will use this information to model the exchange vs. taxable sale comparison, quantify the debt replacement and equity reinvestment requirements, identify any boot exposure, and map the replacement property decision against your retirement income and estate plan — all before a single dollar moves.

Common Checklist Failures (and What They Cost)

Get matched with a specialist financial advisor

Tell us where you are in the process. We will match you with a fee-only advisor who understands this planning problem and can coordinate with your tax and legal professionals.

Fee-only focus - No obligation - Privacy-minded matching - Built for seven-figure planning decisions