Replacement property is the real estate acquired to complete a 1031 exchange — the “into” side of the swap. The exchange’s deferral depends on the replacement satisfying the like-kind, timing, identification, and value-matching rules, which makes replacement selection the exchange’s operational heart.
The rules that govern replacement
Like-kind is generous for real estate: any U.S. real property held for investment or business use qualifies against any other — raw land for apartments, an office for DST interests (fractional DST ownership qualifies as direct real estate, the ruling that built the exchange-product industry). Timing is unforgiving: identification of candidates within 45 days of the sale, in writing to the qualified intermediary, and closing within 180 days — with identification bounded by the standard rules: three-property (any three, any value), 200% (any number, up to twice the sold property’s value), or the rarely used 95% rule. Matching determines deferral completeness: equal-or-greater value, all equity reinvested, debt replaced or offset with cash — shortfalls are boot, taxable to the extent received. The 45-day clock is where exchanges fail or get rescued: it starts at closing regardless of market conditions, which is why exchangers line up candidates before selling, why backup identifications belong on every list, and why DSTs earn their role as identification insurance — available inventory, closeable in days, fractional enough to match values exactly — either as the plan or as the named backup that saves a broken one. Related structures extend the concept: reverse exchanges acquire the replacement first, and improvement exchanges build on it within the 180 days.
Related terms
1031 Exchange · Boot · Qualified Intermediary · Delaware Statutory Trust (DST) · Reverse 1031 Exchange
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