How to Handle a 1031 Exchange Started in 2025 and Completed in 2026

If you started a 1031 exchange in 2025 and are planning to complete the exchange in 2026, there are some important considerations you need to keep in mind. These considerations relate primarily (but not exclusively) to the 180-day deadline for closing on the purchase of your replacement property. Learn what you need to know from a 1031 exchange expert at 1031 National Services:

The 180-Day Deadline Can Be Shortened During Tax Season

While taxpayers who are conducting 1031 exchanges have 180 days to close on the purchase of their replacement property in most circumstances, there is one critical exception: If a taxpayer’s return for the year in which the relinquished property was sold is due in less than 180 days, then the taxpayer must complete the exchange by the due date of the taxpayer’s return.

Effectively, this means that the deadline is less than 180 days for any exchange started after October 17, 2025 (which was 180 days before April 15, 2026). However, taxpayers who are in this situation can request an extension for their annual return, and doing so will extend the deadline to the standard 180 days.

You Must Report the Exchange on Your 2025 Tax Return

Regardless of the specific date on which you complete your 1031 exchange in 2026, you must report it on your 2025 tax return. This is made clear in the instructions for IRS Form 8824 (the form used to report 1031 exchanges). As the instructions state, “If during the current tax year you transferred property to another party in a like-kind exchange, you must file Form 8824 with your tax return for that year.”

A Failed Exchange (Intentional or Unintentional) Can Be Treated as an Installment Sale

If you do not complete your 1031 exchange by the applicable deadline, the IRS will treat the sale of your relinquished property as an installment sale by default. This is true whether you miss the deadline unintentionally or you intentionally allow the exchange to fail.

By letting the exchange fail and receiving the sale proceeds from your qualified intermediary in 2026, you can defer capital gains tax liability on the sale until Tax Day in 2027. Not only can this have immediate tax advantages, but it can also provide you with additional flexibility as you evaluate investment opportunities and consider tax mitigation strategies throughout the year.

A Partial Exchange Will Result in “Boot” (Which You Can Elect to Treat as an Installment Sale)

If you are struggling to find a replacement property that will allow you to fully defer capital gains tax liability from the sale of your relinquished property, you have the option of acquiring multiple replacement properties—provided that you can identify and acquire them in time. Alternatively, you can conduct a partial exchange.

If you conduct a partial exchange, this will result in receiving “boot” that carries immediate tax implications. “Boot” is anything that does not qualify as like-kind property, including cash proceeds. If you receive cash as boot in a partial exchange, you can treat the cash as the proceeds of an installment sale, and this means that you can defer any associated tax liability until next year.

Making Informed Decisions (and the Necessary Filings) is Essential

Regardless of the specific circumstances of your 1031 exchange, it is important to make informed decisions as you think about your next steps. If you don’t make informed decisions, you could unexpectedly (and unnecessarily) incur a significant federal tax bill, whether now or in the future.

It is also important to ensure that you make all necessary filings. If you complete a 1031 exchange, you will need to file IRS Form 8824 with your return. If you elect to treat all or a portion of your exchange as an installment sale, you will need to file IRS Form 6252. You may have other filing obligations as well. Failing to properly file the correct forms can also lead to unnecessary liability—in addition to raising red flags at the IRS.

Learn More from a 1031 Exchange Expert at 1031 National Services

If you would like more information about your options related to a 1031 exchange you started in 2025, we invite you to get in touch. We serve as advisors and qualified intermediaries for businesses and individuals nationwide. To speak with an experienced 1031 exchange expert at 1031 National Services in confidence, give us a call at 888-872-1031 or request a complimentary initial consultation online today.