“Don’t worry — you can do a 1031 exchange after the sale.” If you’ve already closed on a property and the proceeds are available to you, that advice can cost you thousands (or more) in unnecessary taxes.
A 1031 exchange allows you to sell an investment or business-use property and reinvest the proceeds into another qualifying property while deferring capital gains taxes.
It’s not a loophole or a retroactive election. It’s a structured transaction with specific requirements that must be in place before the sale closes.
One rule matters more than almost any other:
You cannot receive or control the sale proceeds.
That rule is the reason most post-sale 1031 attempts fail.
The real issue: “constructive receipt.”
The IRS doesn’t just look at whether you physically received the money — it looks at whether you had the right or ability to receive it. This concept is known as constructive receipt.
If you have access to the funds — even briefly — the IRS considers the sale complete and taxable. At that point, the transaction is no longer an exchange. It’s a sale.
That’s why a properly structured 1031 exchange requires a Qualified Intermediary (QI). The QI holds the proceeds so you never take possession or control of them. Without that structure in place before closing, the exchange generally fails.
Simply put:
You can’t sell first, touch the money, and decide later that it was a 1031 exchange.
Where bad advice usually shows up
“You have 180 days — just buy another property.”
The 180-day rule applies only after a valid exchange has already been established. Buying another property later does not turn a completed sale into a 1031 exchange.
“Have the funds sent to you, then forward them to a QI.”
Once you receive or control the funds, the IRS typically treats the transaction as taxable. The exchange can’t be fixed after the fact.
“Escrow can hold the money — same thing.”
Only if the escrow arrangement follows strict IRS rules that limit your access to the funds. Without the correct exchange documentation and restrictions, escrow alone doesn’t protect the transaction.
Why timing matters so much
There’s a critical difference between before and after closing:
There are rare edge cases where proceeds haven’t been released, and corrective action is still possible, but those situations require immediate professional intervention and shouldn’t be assumed.
If a 1031 exchange is on your radar, the order of operations matters:
Miss step two, and the rest usually doesn’t matter.
What if the sale already happened?
If the property has been sold and you have received or can access the proceeds, your realistic options are limited to:
It’s not the answer people want — but it’s the accurate one.
Sometimes confusion comes in from a different need: buying first and selling later. In those cases, a reverse 1031 exchange may be an option — but it must also be structured in advance and follow its own strict rules.
It’s not a workaround. It’s a different strategy that still requires planning.
A 1031 exchange can be a powerful tax-deferral tool — but it rewards preparation and punishes improvisation. If someone tells you, “You can always do the 1031 after closing,” that’s a red flag. The exchange must be planned and structured before the sale, with the right professionals involved from the start. When it comes to 1031 exchanges, timing isn’t just important — it’s everything
