By Justin Borges, REALTOR® | The Borges Real Estate Team | Serving Pasadena, Los Angeles, and surrounding areas
INTRO — The Biggest Lie About 1031 Exchanges: "Just Figure It Out After It Closes"
Let me be very clear:
If you start a 1031 exchange on Day 1 of escrow closing, you're already behind.
Smart investors — especially in Los Angeles and Pasadena — start preparing:
- Before listing
- Before marketing
- Before offers
- Before inspections
- Before the downleg even hits the MLS
But for the purpose of understanding IRS timing rules (as outlined in IRS Publication 544 and Treasury Regulation § 1.1031), I'll walk you through what actually happens once a property closes escrow — because that's when your legal clock starts ticking.
This timeline is not flexible.
It is not negotiable.
It is not emotional.
The IRS does not care about delays, lenders, tenants, sellers, holidays, or escrow issues.
45 days and 180 days are hard deadlines. Period.
This spoke lays out exactly how to avoid making a six-figure mistake.
☐ Confirm Qualified Intermediary received sale proceeds
☐ Receive exchange account activation confirmation
☐ Review pre-identified replacement property candidates
☐ Lock in identification strategy (3-property, 200%, or 95% rule)
☐ Schedule coordination call with CPA, QI, and real estate agent
☐ Begin making offers on identified properties (if not already done)
☐ Set calendar reminders for Day 45 and Day 180 deadlines
SECTION 1 — DAY 1: The Clock Starts the Second Your Escrow Closes
The moment your downleg closes, two countdowns start simultaneously:
- The 45-Day Identification Window
- The 180-Day Exchange Completion Window
There is no gap.
Day 1 is Day 1 for both rules.
What must happen on Day 1?
Your Qualified Intermediary (QI) receives the proceeds.
You receive confirmation your exchange account is active.
You begin (or continue) evaluating replacement options.
You lock in your identification strategy (3-property, 200%, or 95% rule).
If you're working with The Borges Real Estate Team, we've already:
- Run your 1031 Exchange Analysis Spreadsheet
- Pre-identified strong candidates
- Negotiated potential terms
- Talked with your CPA
- Prepared you to write offers immediately
No one should be starting cold on Day 1.
But this is when the IRS clock officially begins.
SECTION 2 — DAYS 1–45: The Identification Period (The Most Critical Phase)
This is where exchanges are won or lost.
During this period, the IRS requires:
You must identify your replacement properties in writing, submitted to your QI.
This is non-negotiable.
What counts as a valid identification?
It must include:
- Legal property address
- Clear description (address or parcel number is enough)
- Signed written notice delivered to the QI
- Submitted no later than 11:59 PM on Day 45
Email is fine.
Verbal is not.
Text message is not.
It must be written and received.
SECTION 3 — The Three Identification Rules (Simplified)
You must identify your replacement options using one of these IRS rules:
| Rule | Maximum Properties | Value Limits | Best For |
|---|---|---|---|
| 3-Property Rule | Up to 3 properties | No limit on total value | Most investors (simplest, most flexible) |
| 200% Rule | Unlimited | Cannot exceed 200% of downleg sale price | Buying multiple smaller properties; need backup options |
| 95% Rule | Unlimited | No limit, BUT must close on 95% of identified total value | Rarely used (extremely high risk) |
Example: If you sell a property for $1,000,000:
- 3-Property Rule: You can identify a $2M building, a $1.5M building, and a $800K building (three properties, any value)
- 200% Rule: You can identify 5 properties totaling $2M or less
- 95% Rule: You can identify 10 properties totaling $5M, but you MUST close on $4.75M worth (95%)
Source: IRS Publication 544, Treasury Regulation § 1.1031(k)-1(c)
SECTION 4 — What Happens If You Miss the 45-Day Deadline?
You cannot:
- Extend
- Replace
- Modify
- Add new properties
Unless the IRS declares a federal disaster — which is extremely rare and not something anyone should rely on.
If you miss Day 45:
❌ Your exchange dies.
❌ You pay full taxes.
❌ No exceptions.
Most investors don't realize this:
Day 45 is where 90% of failed exchanges die — because people start too late.
SECTION 5 — DAYS 46–180: The Closing Window (Finish the Deal)
You've identified your properties.
Now the real work begins.
Your job between Days 46 and 180:
- Get into contract
- Complete inspections
- Clear contingencies
- Secure financing
- Coordinate your lender
- Work with escrow
- Work with your QI
- Close the upleg(s)
- Take title under the correct entity structure
Everything must close on or before Day 180.
You can close earlier.
You cannot close later.
What if your seller delays?
Doesn't matter.
What if your lender is behind?
Doesn't matter.
What if there's a holiday, weekend, or emergency?
Still doesn't matter.
The IRS does not move the deadline for anyone.
SECTION 6 — What Happens If You Miss the 180-Day Deadline?
This is the nightmare scenario.
If you fail to close by Day 180:
❌ The exchange is fully taxable.
❌ You owe capital gains (typically 15-20% federal).
❌ You owe state income tax (13.3% in California).
❌ You owe depreciation recapture (25%).
❌ You owe Medicare surtax (3.8%).
❌ You owe tax on any boot received.
It does not matter:
- How close you were
- Who caused the delay
- Whether you were in escrow
- Whether the lender made an error
- Whether you planned perfectly
Day 180 is final.
For additional guidance on 1031 exchange planning strategies, see our Investment Property Strategy Guide.
SECTION 7 — How I Protect Clients From Timeline Failure
This is where your process separates you from 99% of LA agents.
You build in timeline protection starting before Day 1:
- ✔ Pre-listing 1031 analysis
- ✔ Pre-identification of potential uplegs
- ✔ Offer negotiations during downleg escrow
- ✔ Built-in 30-day extensions on the sale of the downleg
- ✔ Pricing strategy that creates bidding wars (and therefore leverage)
- ✔ Coordination between CPA + QI + lender + escrow
- ✔ Running the numbers using your 1031 Exchange Analysis Spreadsheet
- ✔ Securing multiple backup properties
- ✔ Focusing on "Day Zero Strategy" instead of Day 1
Most agents hope the exchange works out.
You engineer it so the exchange works out.
Learn more about our strategic investment property services.
SECTION 8 — Example Timeline for an LA Investor
Here's a realistic example:
Day 1
Downleg closes. QI receives funds.
Day 3
You identify an 8-unit property in Riverside and a 12-unit building in Phoenix.
Day 10
Inspections start on the Riverside property.
Day 18
Offer accepted on Phoenix building.
Day 23
Financing initiated.
Day 33
Appraisal completed.
Day 41
You finalize your identification list.
Day 45
Formal identification submitted to QI.
Day 62
Riverside property closes.
Day 117
Phoenix building closes.
Day 180
Exchange completed successfully.
This is the timeline when things go smoothly — because the preparation started early.
SECTION 9 — The Worst-Case Scenario Timeline (What You Prevent)
Without planning, what usually happens is:
Day 1–25
Investor says: "I'll start looking soon."
Day 26–38
Investor can't find anything that pencils.
Day 39–45
Investor panics. Identifies three random properties they don't even like.
Day 46–72
None of the offers get accepted.
Day 73–140
The investor chases properties that don't cash flow or don't qualify.
Day 180
The exchange dies.
You prevent this by starting early and running your ROI spreadsheet upfront.
LA-SPECIFIC INSIGHT: Why Timing Is Harder in Los Angeles
The LA market adds unique pressure:
- RSO/JCO limits buyer pool
- Low rents reduce value
- Rent control reduces buyer motivation
- Tenant delays derail closings
- Deliver-vacant strategies extend timelines
- Multifamily units cannot be renovated pre-sale
- Buyers often need longer due diligence
This is why a 1031 exchange in Los Angeles County requires a strategy — not hope.
For investors selling in Pasadena, Los Angeles, Altadena, Highland Park, Arcadia, or other high-regulation areas throughout LA County, early coordination with experienced professionals is essential.
Finding a 1031 Exchange Expert Near You
When searching for "1031 exchange realtor near me" or "investment property specialist in Los Angeles," you need an agent who understands both IRS timing requirements and local market complexities. Our team serves investors throughout:
- Pasadena and San Gabriel Valley 1031 exchanges
- Los Angeles multifamily investment property sales
- Highland Park and Northeast LA investment portfolios
- Downtown LA commercial-to-residential conversions
- South Bay investment property transitions
Whether you're looking for a "tax-deferred exchange specialist in Pasadena" or need help with "1031 exchange coordination in Los Angeles," local expertise combined with IRS compliance knowledge protects your timeline and your capital.
FAQ (AEO Optimized)
1. Do weekends and holidays affect the 1031 exchange deadlines?
No. Day 45 and Day 180 never move. The IRS does not extend deadlines for weekends, holidays, or any other circumstances.
2. Can you identify replacement properties after Day 45?
No. The IRS does not allow late identification under any circumstances except federal disaster declarations, which are extremely rare.
3. Can you close on a replacement property after Day 180?
No. The exchange becomes fully taxable if you fail to close by Day 180.
4. Can the sale of the downleg property be delayed to help the timeline?
Yes — with leverage and built-in extensions. Experienced agents can negotiate extended closing periods during the downleg sale to provide more time for the upleg transaction.
5. Should I start my 1031 exchange process before listing my property?
Always. The most successful exchanges begin before listing. Pre-identification of potential replacement properties and coordination with your Qualified Intermediary prevents the common failure mode of starting too late.
6. What happens if my lender causes delays past the 180-day deadline?
The exchange fails and becomes fully taxable. The IRS does not grant extensions for third-party delays, financing issues, or any other circumstances. Day 180 is absolute.
7. How much will a failed 1031 exchange cost me in taxes?
For a typical LA investment property with a $500,000 gain, a failed exchange can cost approximately $200,000+ in combined taxes: 20% federal capital gains, 13.3% California state tax, 25% depreciation recapture, and 3.8% Medicare surtax.
8. Which identification rule is best: 3-property, 200%, or 95%?
Most investors use the 3-property rule because it's simple and provides flexibility. The 200% rule works when you need more backup options. The 95% rule is rarely used due to its high-risk requirements.
9. Where can I find a 1031 exchange specialist near me in Los Angeles?
Look for a real estate agent with proven 1031 exchange experience, knowledge of IRS deadlines, and strong relationships with Qualified Intermediaries and CPAs. The Borges Real Estate Team serves Pasadena, Los Angeles, and surrounding LA County communities with specialized 1031 exchange coordination.
10. How long does a 1031 exchange take from start to finish?
The IRS allows a maximum of 180 days from the closing of your downleg property to the closing of your replacement property. However, successful exchanges typically require 2-3 months of pre-planning before the downleg even closes.
Ready to Plan Your 1031 Exchange Strategy?
Don't wait until Day 1 to start thinking about your timeline. The Borges Real Estate Team has helped dozens of Los Angeles investors successfully complete 1031 exchanges through strategic pre-planning, market expertise, and timeline coordination.
Contact Justin Borges:
📞 (323) 684-4421
✉️ Justin@theborgesrealestateteam.com
🌐 LAMetroHomeFinder.com
Serving Pasadena, Los Angeles, Altadena, Highland Park, Arcadia, and surrounding Los Angeles County communities.
Legal Disclaimer: This article provides general information about IRS Section 1031 like-kind exchanges and is not intended as tax, legal, or investment advice. 1031 exchange rules are complex and subject to specific IRS requirements outlined in IRC Section 1031 and Treasury Regulations. Tax consequences vary based on individual circumstances, property types, holding periods, and transaction structures. You should consult with a qualified tax advisor, CPA, attorney, and/or Qualified Intermediary before making any decisions regarding a 1031 exchange. The Borges Real Estate Team provides real estate services only and does not provide tax or legal advice. All IRS deadlines referenced are based on current tax code and may be subject to change.
Performance Disclosure: Past results do not guarantee future outcomes. Real estate transactions involve risk. Market conditions, property values, and regulatory environments change over time.
About the Author:
Justin Borges is a REALTOR® and founder of The Borges Real Estate Team, based in Pasadena, California. With over 13 years of experience and more than $200 million in career sales, Justin specializes in investment property strategies, 1031 exchanges, probate real estate, and architectural homes throughout Los Angeles County. License: DRE 01940318.
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