Internal Revenue Code (IRC) Section 1031 allows real estate investors to defer capital gains taxes and depreciation recapture taxes by exchanging investment real estate for replacement property of equal or greater value. To maintain full tax deferral, the exchange must satisfy strict statutory deadlines and avoid taxable boot.

### IRS Section 1031 Exchange Timelines The exchange clock starts on the day the relinquished property deed is transferred: - **45-Day Identification Window:** You must identify potential replacement properties in writing to your qualified intermediary within exactly 45 calendar days. This deadline cannot be extended, even if day 45 falls on a weekend or federal holiday. - **180-Day Exchange Period:** You must complete the purchase and take title to the replacement property within 180 calendar days of the relinquished property sale, or by the due date of your federal income tax return (including extensions), whichever occurs first.

### Understanding Taxable Boot Exposure Boot represents non-like-kind property or debt relief received in an exchange, which triggers taxable capital gains: - **Mortgage Debt Relief Boot:** If the debt paid off on your sold property exceeds the new mortgage debt assumed on your replacement property (`max(0, debtPaidOff - newDebt)`), the net debt reduction is taxed as boot unless offset with additional cash. - **Cash Boot:** If the replacement property purchase price is lower than the relinquished property sale price (`max(0, relinquishedPrice - replacementPrice)`), uninvested proceeds are treated as taxable boot. - **Total Taxable Boot:** The sum of mortgage boot plus cash boot. Full tax deferral occurs only when total boot equals $0.

### Worked Financial Example Suppose you sell a relinquished commercial rental for $650,000 with $250,000 mortgage debt paid off: 1. Target replacement property value: $700,000 with $275,000 new mortgage financing. 2. Cash boot calculation: `max(0, $650,000 - $700,000) = $0`. 3. Mortgage boot calculation: `max(0, $250,000 - $275,000) = $0`. 4. Total taxable boot: $0 (100% capital gains tax deferral). 5. Both the 45-day identification clock and 180-day acquisition clock commence on the sale closing date.

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