BlueLion 1031

How it works

How a 1031 exchange works, from contract to tax return.

What you do, what BlueLion does, and the rule that applies at each stage. Written for investors selling property held for investment or business use.

Your two deadlines

Enter the date your sale closes, or will close.

Identify by, day 45
Choose a date
Close by, day 180
Choose a date

Five stages, two deadlines

An attorney is staffed on every exchange, and the client portal shows the status of each step as it happens.

  1. StartAs soon as the property is under contract

    Before the sale closes

    You

    • Start your exchange online or call us.
    • Send the sale contract and the name of your settlement attorney or title company.
    • Tell us how the property is titled: your name, a trust, or an LLC.

    BlueLion

    • An attorney reviews the contract and prepares the exchange agreement and the assignment of the sale contract.
    • You sign them inside the client portal with DocuSign.
    • We coordinate with your settlement agent so the closing is documented as an exchange.

    The rule

    The exchange agreement has to be signed before the sale closes. Once sale proceeds reach you, they cannot go into an exchange.

    Treas. Reg. 1.1031(k)-1(f) and (g)(4)

  2. Day 0Your closing date

    The sale closes

    You

    • Sign at closing as usual, with the same buyer on the same terms.
    • Do not take any of the proceeds at the table.

    BlueLion

    • The net proceeds go from settlement into a segregated account for your exchange at an FDIC insured bank.
    • Interest sharing on your exchange funds is available on request.

    The rule

    Both deadlines start today. Weekends and holidays count, and there is no extension for either one except for a federally declared disaster.

    Treas. Reg. 1.1031(k)-1(b)(2)

  3. Day 45Midnight on the 45th day after closing

    Identify the replacement

    You

    • Choose the replacement property or properties.
    • Sign the identification notice before the deadline. You can change it in writing until then, not after.

    BlueLion

    • We prepare the identification notice with each property's address or legal description.
    • We review it with you before you sign, and keep the signed notice on file.

    The rule

    Identify up to three properties of any value, or any number whose total value is no more than 200% of what you sold. If you exceed both limits, you must buy at least 95% of the value you identified.

    Treas. Reg. 1.1031(k)-1(c)

  4. Day 180Day 180, or your tax return due date if earlier

    Close on the replacement

    You

    • Sign the purchase contract in the same name that sold, and tell us your settlement agent.
    • Buy only property on your identification notice.

    BlueLion

    • We prepare the assignment of the purchase contract.
    • We send your exchange funds to the settlement agent for closing.

    The rule

    Close by day 180 or the due date of your return for the year of the sale, including extensions, whichever comes first. A sale late in the year can need an extension to keep the full 180 days.

    Treas. Reg. 1.1031(k)-1(b)(2)(iii)

  5. AfterWith your tax return for the year of the sale

    Report the exchange

    You

    • Give your CPA the settlement statements from both closings.
    • Your CPA reports the exchange on IRS Form 8824.

    BlueLion

    • Your exchange documents stay in the client portal, so you can share them with your CPA.
    • Money left in the account is sent to you once the rules allow it. It is taxable.

    The rule

    Leftover funds can be released after you buy everything you identified, or after day 180. If you identify nothing, they can be released after day 45.

    Treas. Reg. 1.1031(k)-1(g)(6)

How much to reinvest to defer all of the tax

Two tests. Buy replacement property that costs at least your net sale price, and put all of the cash from your exchange account into it. A mortgage paid off at the sale has to be replaced with a new loan, more of your own cash, or both.

Cash you keep, or a smaller replacement, is taxable to that extent. Your CPA confirms the figures: some closing items, such as prorated rent and security deposits, are treated differently from selling costs.

Example figures. Replace them with yours.

Buy for at least
$752,000
Reinvest all of the exchange cash
$452,000
New loan or added cash, at least
$300,000

What can break an exchange

Most failed exchanges come down to one of these. Each is easier to avoid at the start than to fix later.

  • Receiving the money. Proceeds paid to you, or held by your own attorney, accountant or real estate agent, end the exchange for that money. A qualified intermediary has to hold it.
  • Missing day 45 or day 180. Both dates are fixed by regulation. A weekend or holiday does not move them.
  • Buying in a different name. The same taxpayer that sold has to buy. A single-member LLC you own usually counts as you; a partnership or corporation does not.
  • Dealing with a relative or a company you control. Section 1031(f) restricts exchanges with related parties. Tell us at the start if one is on either side of either deal.
  • Property you live in. A primary residence does not qualify. Both properties have to be held for investment or for use in a business.
  • Wire fraud. Criminals send fake wire instructions by email. Before money moves, confirm any wire instructions by phone at a number you already know, such as (410) 863-1555.

Other kinds of exchange

The steps above are for a delayed exchange, where you sell first. These change the order or what you buy. One fee per exchange, settled at the closing of the property you sell. Fee details

Delayed exchangeSell first, then buy within 180 days. Everything above describes this one.
$1,000
Reverse exchangeBuy the replacement before you sell. One of the properties is held on your behalf by an exchange accommodation titleholder until the sale closes. The 45 and 180 day limits still apply.
$7,500
Improvement exchangeUse exchange funds to build on or renovate the replacement. Only work finished before you take title counts toward the replacement's value.
$7,500
DST transactionMove the proceeds into a Delaware Statutory Trust, a share of a larger property that the trust's sponsor manages. Identification and deadlines are the same as a delayed exchange.
$1,000

What to have ready when you start

You do not need all of it on the first call. We open the file with what you have and follow up for the rest.

  • The signed sale contract, and the expected closing date
  • Your settlement attorney or title company, with a contact name
  • How the property you are selling is titled
  • An estimate of the mortgage payoff, if there is a loan
  • Your CPA's name, if you have one
  • Any replacement properties you are already considering

Under contract now?

Start your exchange online in about 30 seconds, or call (410) 863-1555 and speak with an attorney.

Start an exchange

More questions? Read the 1031 exchange FAQ.

This page is general information about section 1031, not legal or tax advice. BlueLion 1031 serves as a qualified intermediary. Talk with your CPA or tax attorney about how the rules apply to you.