Selling investment property? If you're hoping to defer capital gains taxes and reinvest into another property, a 1031 exchange might be your smartest move. But this powerful tax-deferral strategy comes with strict rules—and missteps can be costly.
Let’s walk through the four essential steps you’ll need to follow for a smooth, IRS-compliant 1031 exchange.
1. Add a 1031 Exchange Clause to Your Purchase Agreement
To get started on the right foot, your intent to do a 1031 Exchange needs to be documented from the beginning. Adding a 1031 exchange clause to the purchase agreement notifies the buyer and helps preserve your eligibility. It’s a small but critical step that signals your plan to defer taxes.
2. Engage Your Qualified Intermediary (QI)
Once your contract is signed, it’s time to bring in your QI. A Qualified Intermediary like CPEC1031, LLC prepares the required IRS documentation, holds your sale proceeds in escrow, and structures the exchange for compliance. Without a QI, your exchange could be invalidated—so don’t go it alone.
3. Don’t Touch the Funds
At closing, your proceeds must be wired directly into the QI’s qualified escrow account. If you receive or even temporarily access the funds, the IRS considers it a taxable event. This rule is strict—so make sure your QI is ready ahead of time to receive the funds.
4. Know and Follow Your Deadlines
There are two big deadlines to keep in mind. You only have:
45 days in which to identify all replacement properties
180 days from the sale of your original property or your federal tax filing date, whichever comes sooner to close on the new property
Miss either of those deadlines, and your exchange could be disqualified. A good QI will help you stay on track and avoid common pitfalls.
Thinking About a 1031 Exchange?
A 1031 Exchange is a strategic way to preserve equity, defer taxes, and build long-term wealth—but only if it's done right. At CPEC1031, we guide investors through the process with clarity, speed, and full IRS compliance.
Have questions or want to explore whether a 1031 exchange is right for you? Reach out to Jeff Peterson today at jeffp@cpec1031.com or call 612-643-1031.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
© 2025 Copyright Jeffrey R. Peterson All Rights Reserved