1031 Like-Kind Exchanges Explained for NJ Agents and Investors
The short answer: A 1031 exchange lets an owner of business or investment real estate swap it for other "like-kind" real estate and postpone the tax on the gain, instead of paying it at the sale. In the common deferred version, the replacement property must be identified in writing within 45 days of selling the old one and received within 180 days, or by the tax return due date if that's earlier (26 U.S.C. 1031(a)(3)). A home used only as your residence doesn't qualify (IRS Form 8824 instructions).
You'll hear "1031" from investor clients, often right after a listing appointment. Here's what the term means, so you can follow the conversation and know when to bring in the professionals. For other everyday terms, see our NJ real estate glossary. It's general information, not tax advice. The client's tax adviser and attorney make the calls.
What counts as "like-kind" real estate?
Since January 1, 2018, Section 1031 applies only to real property, not to equipment, vehicles or other personal property (IRS, like-kind exchanges). Both properties must be held for productive use in a trade or business or for investment. Property held primarily for sale, like a flipper's inventory, doesn't qualify.
The IRS says real properties are generally like-kind to each other, "regardless of whether they're improved or unimproved." An apartment building can be exchanged for another apartment building, and the category is broader than that. One firm limit: U.S. real estate isn't like-kind to real estate outside the United States (IRS).
What are the 45-day and 180-day deadlines?
Most exchanges today are deferred. The owner sells first and buys the replacement later. Two clocks start the day the old property (the "relinquished property") is transferred (26 U.S.C. 1031(a)(3)):
| Deadline | Rule |
|---|---|
| Day 45 | Replacement property must be identified in writing |
| Day 180, or the tax return due date with extensions if earlier | Replacement property must be received |
A made-up example: an investor closes on the sale of a Trenton duplex on March 3. Day 45 is April 17, and day 180 is August 30. Both are hard limits written into the statute, not targets. That's very different from how a contract closing date can work (see our guide to "time is of the essence").
The identification must be in a signed writing that describes the property clearly, such as by legal description or street address. It goes to the person obligated to transfer the replacement property or to another party to the exchange who isn't a "disqualified person" (Form 8824 instructions).
How many properties can be identified?
The regulations allow either (Treas. Reg. 1.1031(k)-1(c)(4)):
- Up to three properties of any value (the "3-property rule"), or
- Any number of properties, if their total fair market value doesn't exceed 200% of the value of the property sold (the "200-percent rule").
Why can't the seller just hold the sale money?
Because touching the money turns the deal into a sale. If the owner actually or constructively receives the proceeds before getting the replacement property, the transaction is treated as a taxable sale (Treas. Reg. 1.1031(k)-1(f)(2)).
That's why exchanges usually use a qualified intermediary (QI). The QI holds the money under a written agreement that limits the owner's right to receive, pledge or borrow it (Treas. Reg. 1.1031(k)-1(g)(4)).
Here's the point every agent should remember. The QI can't be a disqualified person. That includes anyone who has acted as the owner's "real estate agent or broker" within the 2 years before the transfer, as well as their employee, attorney or accountant (Treas. Reg. 1.1031(k)-1(k)(2)). The rule doesn't count services related to the exchange itself, or routine financial, title insurance or escrow services from a financial institution. In plain terms, you can't hold your client's exchange money.
What is "boot"?
If the owner receives cash or other non-like-kind property in the exchange, gain is taxed to the extent of that cash or property. People call it "boot" (IRS). A mortgage the other side takes over counts as money received (26 U.S.C. 1031(d)). Losses can't be recognized in a like-kind exchange.
The deferral isn't forgiveness. The replacement property generally takes over the old property's tax basis, adjusted for any money received and gain recognized (26 U.S.C. 1031(d)). The exchange is reported to the IRS on Form 8824 (IRS).
What should a NJ agent do when a client mentions a 1031?
Our suggestions:
- Flag it early. The exchange has to be set up before the sale closes, so the client should talk to a tax adviser before signing.
- Build the deadlines into the calendar. On the buy side, day 45 can arrive before the client has seen many homes. Have the search ready before the sale closes.
- Stay out of the money and the tax advice. Don't hold funds, and don't promise an outcome.
- Ask about state taxes. New Jersey's own tax treatment, including what sellers file at closing, is a separate question for the client's tax professional.
For other investor vocabulary, see our guides to cap rate and commercial real estate careers.
Investor clients ask about these terms early. Business Elementary's 75-hour pre-licensing course builds the foundation for those conversations.
Sources
- 26 U.S.C. 1031 (LII): https://www.law.cornell.edu/uscode/text/26/1031
- Treas. Reg. 1.1031(k)-1, deferred exchanges (eCFR): https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRbf83dcc4bd89326/section-1.1031%28k%29-1
- IRS, Like-kind exchanges – Real estate tax tips (updated May 1, 2026): https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips
- IRS, 2025 Instructions for Form 8824: https://www.irs.gov/pub/irs-pdf/i8824.pdf
Last reviewed: October 31, 2026
Frequently Asked Questions
Can I do a 1031 exchange on my primary home?
Not if it was used solely as your personal residence. If part of it was used for business or investment, other rules, including the home-sale exclusion in Section 121, may apply (Form 8824 instructions).
Can my real estate agent act as my qualified intermediary?
No, if they've acted as your real estate agent or broker within the 2 years before the transfer. They're a disqualified person (Treas. Reg. 1.1031(k)-1(k)(2)).
Are the 45 and 180 days business days?
The statute counts days, not business days. Identification is due "on or before the day which is 45 days after" the transfer (26 U.S.C. 1031(a)(3)).
Can I exchange NJ property for property in another state?
Real property in the United States is generally like-kind to other U.S. real property. Foreign property isn't like-kind to U.S. property (IRS).
What if I exchange with a family member?
Related-party exchanges have special rules, including a 2-year holding requirement and extra Form 8824 filings (Form 8824 instructions). Talk to a tax adviser first.