Missed the 180-Day Rule? Here’s What Happens in a 1031 Exchange

Written By Lance Growth

The 1031 exchange is one of the most powerful tax-deferral strategies for real estate investors. However, it comes with strict IRS rules—especially the 180-day deadline. From the day you sell your relinquished property, you have 45 days to identify a replacement property and 180 days to close on the purchase.

But what happens if you fail to complete the purchase within that 180-day window?

1. Your Exchange Fails

If you don’t close within 180 days, your 1031 exchange is automatically disqualified. The IRS does not allow extensions (except in very rare disaster-related relief situations).

2. Capital Gains Taxes Become Due

Once the exchange fails, the sale of your relinquished property is treated as a regular taxable sale. This means:

  • You’ll owe capital gains tax on the profit.

  • If you’ve held the property for more than a year, long-term capital gains rates apply.

  • You may also owe depreciation recapture taxes, state income taxes, and possibly the Net Investment Income Tax.

3. You Lose Deferral Benefits

The main advantage of a 1031 exchange is the ability to roll all of your equity into a new investment, tax-deferred. Missing the deadline forces you to pay taxes now, reducing the amount of capital available for reinvestment.

4. Cash Is Returned to You

Any funds held by your Qualified Intermediary (QI) will be returned to you after the failed exchange. Once the 180 days are up, your QI is required to release the funds back, and those proceeds become taxable.

5. It May Impact Future Strategies

Paying taxes earlier than planned may affect your ability to grow your portfolio. A failed exchange could mean fewer funds to leverage into larger or more profitable properties.

The Bottom Line
Missing the 180-day deadline is one of the most common (and costly) mistakes in a 1031 exchange. The IRS does not grant exceptions, so careful planning is essential. Start working with a Qualified Intermediary and your real estate team early to make sure deadlines are met and your exchange stays on track.

Thinking of starting a 1031 exchange? Don’t wait until it’s too late—contact us today to ensure your transaction is set up for success.

Lance Growth
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What “Like-Kind” Really Means in a 1031 Exchange