Short answer: To set up a 1031 exchange, hire a qualified intermediary before your sale closes, sign an exchange agreement, and have the sale proceeds wired to the QI instead of to you. Then identify replacement property within 45 days and close within 180 days, with the QI sending the funds directly to that purchase.
Reviewed by Jon Hilley. Last updated September 29, 2026.
You set up a 1031 exchange by hiring a qualified intermediary (QI) before your sale closes, signing an exchange agreement, and having the sale proceeds sent to the QI instead of to you. From there you identify replacement property within 45 days and close on it within 180 days, with the QI wiring the funds to the purchase.
The one step you can't fix later is the first one. If you close the sale and receive the money, even for a day, the exchange is off. Setting up is simple when it's done on time.
Key rules
- No receipt of proceeds: you can't have actual or constructive receipt of the sale money; the QI safe harbor keeps the funds out of your hands (Treas. Reg. §1.1031(k)-1(g)(4))
- Written agreement and assignment: you sign a written exchange agreement with the QI, and your rights in the sale contract are assigned to the QI (Treas. Reg. §1.1031(k)-1(g)(4))
- Notice to all parties: every party to the contract must receive written notice of the assignment on or before the closing date (Treas. Reg. §1.1031(k)-1(g)(4)(v))
- Choose an eligible QI: anyone who acted as your attorney, accountant, real estate agent or employee within the 2 years before the sale, and related parties, can't serve as your QI (Treas. Reg. §1.1031(k)-1(k))
- 45 and 180 days: identify replacement property within 45 days of the sale and close within 180 days or by your tax return due date, if earlier (IRC §1031(a)(3))
How to do a 1031 exchange, step by step
- Confirm the property qualifies: it must be real property held for investment or business use, not your home or a flip. Talk to your CPA or tax attorney about the tax you're deferring and whether a full or partial exchange fits your plans.
- Engage a QI before closing: ideally when you list the property or sign the contract. The QI prepares the exchange agreement, assignment and notice.
- Add a cooperation clause to the sale contract: a sentence stating the buyer will cooperate with your 1031 exchange at no cost or liability to them. If the contract is already signed, the assignment and notice still do the job.
- Close the sale: the title or escrow company wires the net proceeds to your exchange account at the QI. The closing date starts both clocks.
- Identify replacement property by day 45: in writing, signed by you, with a street address or legal description, delivered to the QI.
- Buy the replacement by day 180: take title in the same name and tax ID that sold, or in a single-member LLC disregarded to that owner. The purchase contract is also assigned to the QI, and the QI wires funds directly to the closing.
- Report it: file Form 8824 with your tax return for the year you sold.
What is a 1031 exchange account?
The exchange account is where your proceeds sit between the sale and the purchase. It should be a segregated qualified escrow or trust account held for your exchange, not mixed with the QI's operating funds. Ask any QI how funds are held, whether they carry a fidelity bond and errors and omissions insurance, and how they verify wiring instructions.
You can't draw on the account during the exchange. The regulations also limit when unused funds can be released: generally after day 45 if nothing was identified, and otherwise not until you've acquired everything you're entitled to or day 180 has passed (Treas. Reg. §1.1031(k)-1(g)(6)).
How long does it take to set up a 1031 exchange?
The setup itself is quick: a short intake and a few signed documents. What takes time is the exchange, which can run up to 180 days from the sale closing to the replacement closing.
Example: the money and the dates in a standard exchange
- Sale price of the relinquished rental: $750,000
- Commissions and closing costs: $45,000
- Mortgage payoff: $205,000
- Wired to the exchange account: $500,000
- Sale closing date: March 1, 2027
- Identification deadline (day 45): April 15, 2027
- Purchase deadline (day 180): August 28, 2027
- Replacement purchase price: $900,000
- Paid with: $500,000 from the exchange account plus a $400,000 new loan
The net sale price is $705,000 ($750,000 minus $45,000 of costs). The investor buys a $900,000 property, reinvests all $500,000 of exchange funds and replaces the $205,000 mortgage with a $400,000 loan, so there's no cash or mortgage boot and the full gain is deferred. Because the sale closed in March, the tax return due date the following April doesn't cut the 180 days short. Track your own dates with our 1031 exchange deadline tracker.
Other questions investors ask
Can you do a 1031 exchange by yourself?
In practice, no. If you receive or control the sale proceeds, even briefly, the exchange fails, so a delayed exchange runs through a 1031 exchange qualified intermediary who holds the funds. A direct, simultaneous swap with the other owner is the rare exception. Your own attorney, CPA or agent from the past 2 years can't act as your QI.
How much does it typically cost to do a 1031 exchange?
Our fee for a standard exchange is $1,195, and you pay us when you close. Reverse and improvement exchanges need more structuring and cost $7,995 and $9,995. Normal closing costs such as commissions and title fees apply to both sales either way.
What are the basic requirements for a 1031 exchange?
Both properties must be real property held for investment or business use, the same taxpayer must sell and buy, you can't receive the proceeds, and you must meet the 45-day and 180-day deadlines. See What property qualifies for a 1031 exchange?
Common mistakes
- Calling after closing: The most common problem we see is a seller who learns about 1031 exchanges after the proceeds hit their bank account. At that point, no QI can rescue that sale.
- Using your own agent or accountant as the QI: Anyone who has acted as your agent in the past 2 years is disqualified. Routine title, escrow and banking services are an exception, but your regular real estate attorney or CPA generally can't hold your funds.
- Choosing a QI on price alone: Investors rarely ask how exchange funds are held. Ask about segregated accounts, bonding, insurance and wire verification before you sign.
