Strict deadlines
The 45-day identification and 180-day closing windows are unforgiving. A tight timeline can push you into a mediocre replacement property just to avoid blowing the exchange.
Costs and complexity
You'll pay a qualified intermediary and added closing complexity. For smaller gains, the fees and hassle can outweigh the tax deferred.
Deferred, not forgiven
The tax doesn't disappear — it rolls into the new property with a lower basis, so you carry the liability forward and get smaller depreciation going forward.
Frequently asked questions
What are the downsides of a 1031 exchange?
Strict 45/180-day deadlines, intermediary and closing costs, reduced flexibility, and a carried-forward tax liability with lower basis.
When is a 1031 not worth it?
On smaller gains, when you want liquidity, or when you can't find a good replacement in time.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.