The sequencing of a 1031 exchange is straightforward. Day 0 begins with the relinquishment of your legacy property. Exactly 45 days later, you must have a replacement property or multiple replacement properties identified in writing. Then, 180 days after Day 0 (or the due date of your tax return), all replacement property must be acquired.

In that time frame, the exchanger may exchange real property for any other real property located in the United States or its possessions if the replacement property is held for productive use in a trade or business or for investment. This is known as “Like-Kind” property, which refers to the nature or character of the property and not Its grade or quality. Generally, all real property is “Like-Kind” to all other real property. Real property can be Improved or unimproved because this only relates to the grade or quality, not its kind or class. The exchanger’s intent must be to hold the replacement property for investment or productive use in a trade or business. Of importance: real estate and personal property are not like-kind.

As you move through the full journey and to receive a complete deferral, there are three rules in play:

1. You must purchase replacement property that is equal to (or greater than) the value of the relinquished property. Reinvestment all of the net proceeds from the relinquished property into qualifying replacement property is required. (Any cash received will be taxable)
2. You must offset debt from relinquished property with equal or greater debt on replacement property. Reduction in debt may be offset with additional cash Invested in the replacement property
3. You must receive nothing in the exchange but like-kind property