1031 exchanges · The escrow side
The escrow side of a 1031 exchange
Under Section 1031, an investor can trade one investment property for another and put off paying tax on the gain. An exchange runs through two escrows, one for the sale and one for the purchase. We can handle either or both. Between the two, the sale money sits with your qualified intermediary. We are not an intermediary, and we can’t advise you on taxes.
What does Section 1031 allow?
The federal tax code’s Section 1031 lets you trade real estate held for business or investment for other real estate of the same kind. You put off tax on the gain instead of paying it at the time of the trade. The Internal Revenue Service (IRS) says the rule has covered only real property since 2018. Machinery, vehicles, artwork and other personal property no longer qualify, and neither does real estate held mainly to resell (IRS).
If you walk away with cash, or with property that isn’t like-kind real estate, that part is called boot. You’re taxed on it, up to the amount of your gain. You report the exchange on IRS Form 8824.
Words you’ll hear
Exchanges come with some new vocabulary.
| Word | What it means |
|---|---|
| Qualified intermediary | The company you hire under a written exchange agreement. It receives the money from your sale and uses it to buy your new property. It’s also called an accommodator, or a QI. We aren’t one. |
| Relinquished property | The property you sell. The IRS calls it the property given up. |
| Replacement property | The property you buy with the exchange money. |
| Identification | Naming the replacement property in a signed, written document within 45 days after the sale. |
| Boot | Anything you receive in the exchange besides like-kind real estate, such as cash. It’s taxable. |
| Form 593 | California’s real estate withholding form. The seller gives it to escrow before closing. |
| FTB | The Franchise Tax Board, which collects California income tax. |
Where does the money go in an exchange?
Never to you. It moves between escrow and your intermediary until the new property closes.
- HeldThe sale money, passed from escrow straight to your intermediary
- CheckedBy day 45, the replacement property is named in writing. By day 180 it must be yours, or sooner if your tax return, with extensions, is due first.
- ReleasedTitle to the new property, recorded in your name
Two escrows and an intermediary, step by step
The plan comes from you, your CPA and your intermediary. Our part is the escrow for each sale.
Step 1: Sign up with an intermediary first
You and your intermediary sign a written exchange agreement before your sale closes. Under it, the intermediary takes the property you’re selling and passes it on, then buys the new property and passes that to you (FTB). The IRS treats an exchange run through a qualified intermediary as a like-kind exchange. Your own agents, relatives and related companies can’t be your intermediary (IRS Form 8824 instructions).
Step 2: Your sale closes
At closing, the sale escrow sends your proceeds to the intermediary, as its instructions say. None of it is paid to you.
HeldThe proceeds wait with your intermediary.
Step 3: Name the new property by day 45
Within 45 days after you transfer the property you sold, you name the replacement property in a signed document. It has to describe the property clearly, such as by street address or legal description, and go to a party to the exchange, such as your intermediary (IRS Form 8824 instructions).
Step 4: The purchase escrow opens
Buying the new property has its own escrow. When that purchase is ready to close, the intermediary provides the money.
CheckedFunds arrive from the intermediary, not from your account.
Step 5: Take title by day 180
The deadline to receive the new property is day 180 after your sale. If your tax return for that year comes due first, extensions included, the return’s due date becomes the deadline.
ReleasedThe new deed is recorded, with you as the owner.
Who does what?
Your intermediary and escrow have separate jobs.
| Job | Your qualified intermediary | Escrow (us) |
|---|---|---|
| Enters into the exchange agreement with you | Yes | No |
| Holds the money while you’re between properties | Yes | No |
| Runs the sale escrow and the purchase escrow | No | Yes |
| Instructions on where the money goes | Gives them | Follows them |
| Withholds state income tax in the exchange, when it’s required | Yes | No |
Does California withhold tax in an exchange?
California requires real estate withholding when California real property is sold, unless an exemption applies. It’s an early payment toward the seller’s income tax, at a standard rate of 3 1/3% of the total sales price (FTB Publication 1016). The seller claims an exemption, or reports an exchange, on Form 593, given to escrow before closing (FTB).
In a deferred exchange, the FTB puts that duty on the intermediary, not on the escrow company. If you certify an exchange on Form 593, the intermediary still withholds if your boot is more than $1,500, or if the exchange fails, unless another exemption applies (FTB).
What does escrow charge for an exchange?
Call us at (714) 544-6525 for a quote on the sale escrow, the purchase escrow or both. Your intermediary charges its own fees for the exchange itself.
1031 exchange questions
Do you act as a 1031 qualified intermediary?
No. We run the escrow on the property you sell and a second escrow on the property you buy. Between the two, your qualified intermediary keeps the sale money, so it never passes through your hands. The Internal Revenue Service (IRS) covers the rules in the instructions for its Form 8824. Your CPA or tax attorney can answer tax questions.
What are the deadlines in a 1031 exchange?
Two deadlines start when you transfer the property you’re selling. You have 45 days to name the replacement property in writing. The replacement must be received within 180 days, or by the due date of that year’s tax return, extensions included, whichever is earlier (IRS Form 8824 instructions).
Does escrow keep my sale money until I buy the new property?
No. At closing, the money leaves the sale escrow for your intermediary. It reaches the purchase escrow only when that purchase is ready to close. In between, your intermediary holds it.
Can my own home be part of a 1031 exchange?
No. Section 1031 is for business or investment real estate. A property you used only as your home doesn’t qualify (IRS Form 8824 instructions). A home that was partly a rental has its own rules, so ask your CPA.
Sources and fine print
- Internal Revenue Service: real estate tax tips on like-kind exchanges
- Internal Revenue Service: Form 8824 instructions, with the 45- and 180-day rules
- Franchise Tax Board: withholding by a qualified intermediary
- Franchise Tax Board: real estate withholding and Form 593
- Franchise Tax Board Publication 1016, on real estate withholding
Sources checked September 2026. Page updated . General information, not legal or tax advice.