5 Costly Mistakes First-Time Exchangers Often Overlook

Small missteps, big tax consequences

A 1031 exchange can defer significant capital gains tax, but a single mistake can disqualify the entire transaction. These are the mistakes we see most often with first-time exchangers, and how to avoid them.

1. Setting up the exchange too late

Your qualified intermediary must be engaged and your exchange agreement in place before your relinquished property closes. Waiting until after closing to start the process can invalidate the exchange entirely.

2. Missing the 45 day identification deadline

This deadline is calendar days, not business days, and there are no exceptions. Investors who wait too long to start their property search often run out of time to identify anything at all.

3. Taking receipt of the sale proceeds

If proceeds pass through your hands, even briefly, the exchange is disqualified. Funds must go directly from closing to your qualified intermediary's escrow account.

4. Under-buying on replacement property value

To fully defer your capital gains, your replacement property must be of equal or greater value than the one you sold, and you must reinvest all of your net proceeds. Buying down triggers taxable gain.

5. Overlooking financing and title issues

Loan terms, vesting, and title requirements on the replacement property need to be confirmed early. Last minute financing problems are one of the leading causes of failed exchanges.

Avoid the guesswork

Our team walks first-time exchangers through every step, from opening your exchange account to closing on your replacement property, so these mistakes never become your problem.