1031 Exchange Rules and Requirements: 2025 Update

Like-kind exchanges under Section 1031 of the Internal Revenue Code (IRC) provide real estate investors and businesses with the ability to achieve significant (and potentially indefinite) tax savings when selling existing properties. However, to achieve this tax savings, investors and businesses must strictly comply with Section 1031’s requirements—as even technical and seemingly minor shortcomings can trigger immediate tax liability. What do you need to know in 2025? Find out from an experienced 1031 qualified intermediary.

The 1031 Exchange Rules for 2025

So far, the 1031 exchange rules and requirements remain unchanged in 2025. According to Kiplinger, “[President] Trump’s administration is expected to maintain existing 1031 rules without significant changes.” As Kiplinger also notes, while the Biden administration proposed a $500,000 cap on 1031 exchanges, this proposal is “not expected to hold with the new administration.” If anything, the Trump administration appears most likely to expand access to the indefinite tax deferral available for like-kind exchanges under Section 1031.

For now, though, the rules that were in effect in 2024 remain in effect for 2025. Among other things, this means that conducting a 1031 exchange involves meeting the following requirements:

Sale of a Qualifying “Relinquished” Property

A real estate investor or business seeking to conduct a like-kind exchange must sell a qualifying property as part of the exchange process. While a “straight” exchange involves selling one property and buying another simultaneously, “reverse” exchanges allow taxpayers to buy their replacement property first, while “delayed” exchanges allow for a two-step process that starts with selling a qualifying “relinquished” property.

Purchase of a Qualifying “Replacement” Property

The “replacement” property acquired in a 1031 exchange must be of “like kind” to the taxpayer’s relinquished property. As the Internal Revenue Service (IRS) explains, “[p]roperties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality,” and “[r]eal properties generally are of like-kind, regardless of whether they’re improved or unimproved.” However, there are some important exceptions. For example, real estate located in the United States is not considered of “like kind” with real estate in other countries.

A True “Exchange” of One Property for the Other

The “exchange” is a key aspect of a like-kind exchange under Section 1031. As noted above, a “straight” exchange involves closing both the sale of the relinquished property and the acquisition of the replacement property at the same time. However, as this is not desirable or feasible in many cases, real estate investors and businesses will often want to work with a 1031 qualified intermediary that can assist with conducting a “reverse” or “delayed” exchange that avoids triggering immediate federal income tax liability.

Among other things, a 1031 qualified intermediary holds the relevant funds in escrow—keeping them out of an investor or business’s account so that they do not become subject to federal income taxation. When properly documented (and conducted in compliance with the applicable time restrictions, as discussed below), “reverse” and “delayed” exchanges provide additional flexibility without jeopardizing the tax benefits that are available.

Completing the Exchange Within the Applicable Time Restrictions

There are two key time restrictions that apply to 1031 exchanges under the rules that remain in effect as of early 2025: (i) taxpayers have 45 calendar days from the date they sell a relinquished property to identify one or more potential replacement properties, and, (ii) the exchange must be completed within 180 calendar days of the sale of the relinquished property, or the due date of the taxpayer’s federal tax return for the year in which the relinquished property is sold, whichever is earlier. There are specific requirements for “identifying” a replacement property, and an experienced 1031 qualified intermediary can assist with meeting these requirements as well.

Paying Tax on Any “Boot” Received Through the Exchange

Finally, if a taxpayer receives any funds from the sale of a relinquished property that are not reinvested in a replacement property in accordance with the rules for 1031 exchanges, these funds are classified as “boot.” As a general rule, “boot” from a 1031 exchange is subject to immediate federal income taxation. While there are options for offsetting (or “netting”) boot, pursuing these options requires a clear and comprehensive understanding of the restrictions that apply.

Learn More from an Experienced 1031 Qualified Intermediary

Do you need to know more about the rules for conducting like-kind exchanges in 2025? If so, we invite you to get in touch. To speak with an experienced 1031 qualified intermediary at our offices in confidence, please call 888-872-1031 or request a free consultation online today.