5 Common 1031 Exchange Mistakes (And How to Avoid Them)

## Avoid These Costly 1031 Exchange Errors A successful 1031 exchange requires attention to detail and strict adherence to IRS rules. Here are the five most common mistakes we see—and how to avoid them. ### Mistake #1: Missing Deadlines The 45-day identification and 180-day closing deadlines are **absolute**. The IRS does not grant extensions for any reason, including weekends, holidays, or circumstances beyond your control. **Solution**: Mark both deadlines on your calendar the day you close on your relinquished property. Set multiple reminders and have backup properties identified. ### Mistake #2: Taking Constructive Receipt of Funds If you or your agent ever have control of the sale proceeds—even briefly—the entire exchange is disqualified. **Solution**: Always use a Qualified Intermediary to hold funds. Ensure your purchase agreement and closing instructions direct proceeds straight to the QI. ### Mistake #3: Insufficient Replacement Value To defer 100% of your capital gains, the replacement property must be of **equal or greater value** than what you sold, and you must reinvest all equity. **Solution**: Work with your QI to calculate the exact replacement value needed. If you receive any cash ("boot"), it will be taxable. ### Mistake #4: Failing to Meet Like-Kind Requirements While the like-kind definition is broad for real estate, your property must still be held for investment or business purposes—not personal use. **Solution**: Document your investment intent. For STRs, maintain business records showing rental activity, income, and expenses. ### Mistake #5: Poor Record Keeping The IRS can audit 1031 exchanges years later. Without proper documentation, you may not be able to prove your exchange was valid. **Solution**: Keep all records indefinitely, including: - Purchase and sale documents - Identification letters - QI agreements and correspondence - Closing statements - Evidence of investment intent ### The Bottom Line Most 1031 exchange failures are preventable with proper planning and professional guidance. Don't let a simple mistake cost you tens of thousands in taxes. **Want to ensure your exchange goes smoothly?** Savvy 1031 is here to help you navigate every step.