A 1031 exchange is one of the last real tax deferrals available to CRE investors. It is also one of the easiest to accidentally break. Every year we see deals where a sponsor thought they had cleanly rolled equity forward, only to receive a Schedule D surprise from their CPA in April.
1. Missing the 45-day identification window
You have 45 calendar days from the sale of your relinquished property to identify replacement candidates in writing to your qualified intermediary. Not 45 business days. Not '45 days but the QI is closed on Sunday.' The IRS has denied exchanges over hours-late identifications.
2. Constructive receipt of proceeds
The moment the sale proceeds touch an account you control — even for an hour, even by mistake — the exchange is dead. This is why the qualified intermediary exists. Do not let your closing attorney wire funds to your operating account 'temporarily.'
3. Identifying too many properties without a rule
You can identify (a) up to 3 properties of any value, (b) any number up to 200% of the relinquished sale price, or (c) any number if you acquire 95% of the aggregate value. Sponsors who list 5 properties without meeting the 200% or 95% test lose the entire exchange.
4. Buying with intent to flip
Replacement property must be 'held for productive use in a trade or business or for investment.' Selling the replacement within 12–24 months is a red flag. The IRS looks at intent at acquisition; contemporaneous documentation (memos, business plans) matters.
5. Related-party trades without the two-year hold
Buying from or selling to a related party (including entities you control) triggers a two-year holding requirement on both sides. Break it and the deferral unwinds retroactively.
Our free 1031 exchange timeline calculator computes both deadlines from your relinquished-property sale date and flags weekends and holidays that many sponsors miss.