Deadline and identification errors
Missing the 45-day identification deadline. From the date you close the relinquished property, you have exactly 45 days to identify the replacement property in writing to your qualified intermediary. There is no extension except in federally declared disasters. The most common failure: underestimating how hard it is to find suitable property in 45 days in a tight market.
Identifying too many properties without the 200% rule. You may identify up to three properties of any value (the 3-property rule). If you identify more than three, you must not close on more than 200% of the relinquished property's FMV (the 200% rule), or you must close on at least 95% of all identified properties. Violating the limits causes all identified properties to fail.
Missing the 180-day closing deadline. The 180-day period runs from the closing of the relinquished property (not from the 45-day date). If your tax return due date falls earlier, the deadline is the earlier of 180 days or the due date of your return (including extensions). Filing an extension buys you the full 180 days.
Constructive receipt and QI errors
Receiving the sale proceeds. If the proceeds from the relinquished property ever touch your hands — even briefly — you have constructively received the cash, and the exchange fails. The money must flow directly to a qualified intermediary at closing. Do not instruct the title company to send funds anywhere other than the QI.
Using an ineligible QI. The qualified intermediary cannot be your agent — meaning your attorney, CPA, real estate broker, employee, or someone who has acted in that capacity in the prior two years. Using a disqualified person as a QI destroys the exchange.
Paying personal expenses from escrow. Using exchange funds for anything other than the replacement property acquisition (even closing costs not directly related to the purchase) can constitute boot.
Boot and basis errors
Receiving net boot. If you sell for more than you pay for the replacement property, or if you receive cash (mortgage relief, unused proceeds), the excess is taxable boot. Boot does not disqualify the exchange — it simply creates a partially taxable transaction — but investors sometimes receive boot without realizing it.
Not replacing debt. Mortgage relief (paying off more debt than you take on with the new property) is treated as boot unless offset by additional cash invested. If your relinquished property had a $400,000 mortgage and you buy a replacement property with only $300,000 in debt, the $100,000 difference is boot unless you add $100,000 in cash.
Buying a lower-value replacement. The full tax deferral requires reinvesting at least the amount realized (net proceeds plus debt relief) in the replacement property. Buying down creates taxable boot equal to the shortfall.
Frequently asked questions
What is the most common reason a 1031 exchange fails?
Missing the 45-day identification deadline or allowing the sale proceeds to pass through the seller's hands before reaching the qualified intermediary. Both failures are fatal to the exchange.
Can I get a deadline extension on a 1031 exchange?
Generally no. Extensions are available only in federally declared disasters under Rev. Proc. 2018-58 and similar guidance. The only other way to get more time is to file a tax return extension, which preserves the full 180-day closing window.
What happens if my 1031 exchange partially fails?
A partial exchange is possible: the portion of gain attributable to boot received is taxable; the rest is deferred. The exchange does not fail entirely just because you receive some boot.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.