1031 Exchange Checklist: Every Step From Start to Close

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Phase 1: Pre-Sale Preparation (Before Listing)

• Confirm property qualifies - held for investment or business use, not personal use or dealer inventory
• Run the tax calculator - know your estimated tax exposure across all four layers (use calculator)
• Consult your CPA - confirm exchange makes financial sense for your overall tax situation
• Research and select a qualified intermediary (QI) - compare at least 2-3 QIs on fund security, experience, and fees
• Sign exchange agreement with QI - must be executed before your property closing
• Begin identifying potential replacement properties - don't wait until after the sale
• Notify your real estate agent - ensure listing and purchase contracts include 1031 cooperation language
• Notify your title company/escrow agent - they'll coordinate with the QI on closing day
• Review entity structure - the same taxpayer that sells must buy (same name, same entity)
• Pre-qualify for replacement property financing - get pre-approved if you'll need a mortgage

Phase 2: Sale of Relinquished Property (Day 0)

• Ensure sale proceeds go directly to QI - funds must NOT touch your personal or business account
• Verify exchange documents are properly assigned - QI takes your position in the sale contract via assignment
• Confirm closing agent has QI wire instructions - proceeds wire to QI's escrow account
• Record Day 0 - the closing date starts both the 45-day and 180-day clocks
• Calculate exact deadline dates - Day 45 (identification): _________ | Day 180 (closing): _________

Phase 3: Identification Period (Days 1-45)

• Identify replacement properties in writing - submit identification letter to your QI
• Follow identification rules:
  • 3-Property Rule: up to 3 properties of any value, OR
  • 200% Rule: any number of properties whose total value doesn't exceed 200% of sale price, OR
  • 95% Rule: any number if you close on 95%+ of total identified value
• Use proper property descriptions - legal description or street address sufficient for unambiguous identification
• Submit identification before midnight on Day 45 - strict deadline with only limited IRS disaster-relief exceptions
• Keep copies of the identification letter - sent, received, and timestamped
• Begin due diligence on identified properties - inspections, appraisals, title work

Phase 4: Acquisition Period (Days 1-180)

• Complete due diligence - inspections, environmental reports, appraisals, title search
• Finalize financing - loan application, underwriting, rate lock
• Coordinate with QI on closing - QI will wire exchange funds to the replacement property closing
• Verify replacement property value - must equal or exceed relinquished property sale price for full deferral
• Verify debt on replacement - must equal or exceed debt on relinquished property (or add cash to offset)
• Review closing documents - ensure entity name matches, QI assignment is proper
• Close on replacement property before Day 180 (or the due date of your tax return including extensions, if earlier) - strict deadline with only limited IRS disaster-relief exceptions
• Confirm QI has disbursed all exchange funds - zero balance remaining at QI

Phase 5: Post-Closing

• Collect all exchange documentation - exchange agreement, identification letters, closing statements (both transactions), QI correspondence
• Provide documentation to your CPA - they'll need everything for Form 8824
• File Form 8824 with your annual tax return for the year of the relinquished property sale
• Set up depreciation schedules for replacement property (carryover basis + excess basis)
• Store all exchange records permanently - required for as long as you hold the property + 3 years
• Review insurance on replacement property - confirm adequate coverage
• Set up property management (if applicable) for replacement property

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Pro tips:

• Share this checklist with your CPA, attorney, real estate agent, and QI at the start of the process
• Calendar the Day 45 and Day 180 deadlines immediately and set multiple reminders
• Identify replacement properties before selling whenever possible
• Keep a DST as a backup identification in case your preferred deals fall through