IRS Requirements for 1031 Exchanges – Your Essential Guide

What is a 1031 Exchange? A 1031 exchange is a powerful tax-deferral strategy that allows real estate investors to sell a business or investment property and reinvest the proceeds into a like-kind property—without paying immediate capital gains tax. To comply with 1031 exchange requirements, investors must follow strict IRS regulations. Key IRS Requirements for 1031 Exchanges Use of a Qualified Intermediary (QI): The IRS mandates that all 1031 exchanges—both delayed and simultaneous—must involve an independent, unrelated Qualified Intermediary (QI) as per IRS Regulations 1031(k)-1(g)(4) and 1031(b)-(2). The QI holds the sale proceeds in escrow and facilitates the exchange. Like-Kind Property: The exchanged properties must be of similar nature, regardless of quality or grade, to qualify for tax deferral. No Direct Access to Funds: The seller cannot receive proceeds from the sale; funds must go through the QI before acquiring the new property. Unlimited Exchanges: There is no limi