Glossary

Replacement Property

The like-kind property acquired to complete a 1031 exchange, which must be formally identified within 45 days and closed within 180 days of the relinquished property's sale to preserve tax deferral.

To fully defer all realized gain, replacement property must have a purchase price and debt level at least equal to the relinquished property's net sale price and payoff debt, and the exchanger's equity from the exchange must be fully reinvested; falling short on either value or leverage creates boot taxable to that extent. Replacement property need not be a single asset — exchangers can diversify into multiple properties, subject to the 45-day identification rules, or acquire a fractional interest through a TIC or DST structure, a common approach for exchangers seeking to right-size management responsibility as they age out of active ownership.