If you are planning to roll gains into San Jose property, the 1031 exchange clock is your biggest risk. The market can move fast, but the IRS timelines do not bend. You want to protect your tax deferral while still landing the right asset in Santa Clara County.
In this guide, you will learn the 45 and 180 day rules, how to structure your identification list, how to coordinate your QI, lender, and title, and what San Jose due diligence items to check early. You will also get a practical checklist and timeline you can use right away. Let’s dive in.
1031 basics you must know
A 1031 exchange lets you defer capital gains taxes when you exchange real property held for investment or business use for like-kind real property. After 2018, personal property no longer qualifies. You can review the federal rules and reporting guidance in the IRS summary on like-kind exchanges and Form 8824 instructions.
- Learn the federal foundation in the IRS overview of like-kind exchanges and timing rules at the IRS site: IRS guidance on Section 1031 and timelines.
- For reporting after you close, see IRS Form 8824 instructions.
The 45-day identification rule
You have 45 calendar days from the date you transfer your relinquished property to identify replacement properties in writing. Weekends and holidays do not extend this period. You must deliver the written identification to your Qualified Intermediary or other permitted party by day 45.
The 180-day completion rule
You must acquire your replacement property and complete the exchange within 180 calendar days after the transfer date, or by your tax return due date for that year if earlier. In most standard deferred exchanges, the 180-day clock is the controlling limit. There are no extensions for appraisal delays or permitting.
Avoid constructive receipt
At no point can you receive or control the proceeds from your sale. Your QI must hold the funds and route them into your replacement purchase. If funds touch your account or are misdirected, the exchange can fail.
Boot and debt basics
- Cash boot: Any cash you receive is taxable.
- Mortgage or liability boot: If the replacement debt is lower than the relinquished debt, the shortfall can be taxable unless you add new cash or financing to make up the difference.
Identification methods at a glance
You must identify your potential replacements using one of these methods during the 45-day window:
- 3‑property rule: Identify up to three properties, any value.
- 200 percent rule: Identify any number of properties as long as the total fair market value does not exceed 200 percent of the relinquished property’s value.
- 95 percent exception: If you identify more than three properties and exceed 200 percent, you must acquire at least 95 percent of the total value identified.
Smart identification in San Jose
San Jose’s high prices and tight inventory make the 45 days feel short. Use precise identification language and build backups so you can keep options open while you inspect.
Use precise descriptions
Your identification must be unambiguous. Include the street address, APN, and legal description if available. Keep proof of delivery to your QI.
- Good: “Property located at 123 Main St, San Jose, CA 95112; Assessor’s Parcel Number 123‑45‑067; legal description: Lot A of Tract No. 9876, Santa Clara County.”
- Poor: “A downtown San Jose investment property suitable for conversion.”
You can confirm APNs and property details through the Santa Clara County Assessor and verify zoning and permitted uses with the City of San Jose Planning Division.
Use the 3‑property rule wisely
If you have three strong targets, this is the simplest route. In a competitive market, try to line up inspections and appraisals fast so you can move on your first and second choices if needed.
When to use the 200 percent rule
If your relinquished property is lower value than typical San Jose replacements, the 200 percent rule lets you identify several options as long as total value does not exceed 200 percent of your relinquished property’s value. This can be helpful when you split proceeds across multiple condos or townhomes.
Example: If your relinquished property value is 2,000,000 dollars, you can identify any number of properties with a combined value up to 4,000,000 dollars.
The 95 percent backstop
If you must list more than three properties and their total value will exceed 200 percent, the exchange can still work if you acquire at least 95 percent of the total value you identified. In practice, this is a high bar and requires tight coordination with lenders and sellers.
Sample ID wording
Use simple, specific language. For example:
- “Property located at 456 Market St, San Jose, CA 95113; APN 678‑90‑123; legal description per preliminary title report.”
Keep the date on your identification letter and save proof of delivery to your QI.
Line up your team early
Your exchange will only move as fast as your slowest partner. Engage your QI and lender before you close your sale, and choose a title company that has handled 1031s in Santa Clara County.
Qualified intermediary basics
Your QI holds funds, prepares exchange documents, and coordinates with escrow. Ask for their fee schedule, a sample exchange agreement, and proof of insurance. The Federation of Exchange Accommodators offers helpful background on exchange structures and best practices at the FEA site.
Lender timing and debt
Appraisals, underwriting, and loan docs must fit inside 180 days. Get pre‑approved or a firm commitment before you identify. If your replacement loan will be smaller than your prior loan, plan to inject cash or adjust financing to avoid mortgage boot. Bridge loans can help speed a close but must be structured so you do not take constructive receipt of exchange funds.
Title and escrow coordination
Title and escrow must reference the exchange and follow the QI’s wiring instructions. Your QI should receive draft closing statements early to confirm funds flow. Choose an escrow team with local experience to avoid delays with San Jose or county transfer taxes and recording.
Timelines that actually work
Here is a practical, San Jose‑focused timeline you can adapt:
Weeks to months before listing or selling
- Confirm 1031 eligibility and tax impact with your CPA or tax counsel.
- Engage a reputable QI and request sample documents and wiring info.
- Obtain lender pre‑approval and discuss appraisal turn times.
- Start scouting targets and line up quick‑turn inspectors.
Day 0: Relinquished property closes
- Your 45‑day identification clock starts.
- Your 180‑day completion clock starts.
Days 1–45: Identification window
- Deliver written identification to the QI with addresses, APNs, and legal descriptions.
- Order appraisals and begin inspections on identified properties.
- Build in backups using the 3‑property or 200 percent rules.
Days 46–180: Acquisition and closing
- Finalize underwriting, clear contingencies, and coordinate closing funds through the QI.
- If using a reverse or improvement structure, ensure EAT documentation is in place and complete title transfers by day 180. For structure details and timing nuance, see the FEA guidance on exchange accommodation.
After closing
- Keep all exchange paperwork and report the exchange on IRS Form 8824 with your tax return.
Avoid these costly traps
Deadline misses
Missing the 45‑day identification deadline is fatal to a deferred exchange. Calendar the date and send IDs early with proof of delivery. Close all acquisitions by day 180 or you risk recognition of gain.
Ambiguous IDs
Vague descriptions invite IRS challenges. Use full addresses, APNs, and legal descriptions. Pull APNs from the Santa Clara County Assessor and confirm zoning with San Jose Planning.
Constructive receipt
Do not let funds touch your account. All proceeds must be held by the QI and disbursed to the seller at closing through escrow.
Entity mismatches and related parties
Make sure the taxpayer selling is the same taxpayer buying. If related parties are involved, special holding rules apply. Engage tax counsel if you plan to buy from or sell to a related party.
Appraisal delays and financing
Appraisals can take weeks. Order them right after you identify. Keep tight contact with your lender so underwriting does not push you past day 180.
State tax and depreciation
California conforms to federal 1031 rules in many respects, but state treatment can vary by situation. Review California-specific guidance with your CPA. Plan ahead for depreciation recapture when you eventually sell without exchanging.
San Jose due diligence
Zoning and permits
Confirm permitted uses, any redevelopment limits, and potential for conversion through the City of San Jose Planning Division. Early answers help you price offers and set inspection timelines.
Rent and tenant rules
San Jose has tenant protection and just‑cause eviction provisions. Review local ordinances to understand notice, rent stabilization rules where applicable, and how these may affect income projections and renovation plans.
Seismic and building issues
Factor in soft‑story and earthquake retrofit considerations, especially for multifamily. Build time for structural and pest inspections, and for any remediation, into your 180‑day plan.
Taxes and local fees
Ask title to confirm documentary transfer taxes, recording fees, and any special assessments or Mello‑Roos that may affect your cap rate and closing costs.
One‑page prep checklist
Use this to streamline your exchange into San Jose:
Tax and structure
- Confirm 1031 eligibility and estimated tax impact with your CPA or 1031 attorney.
- Decide on exchange type: deferred, reverse, or improvement. Reverse and improvement exchanges add cost and documentation.
Team and financing
- Select a QI, get fee schedule, sample documents, and wiring instructions.
- Obtain lender pre‑approval and appraisal timelines. Discuss bridge options and due‑on‑sale issues if considering a reverse exchange.
Market vetting
- Pre‑screen targets for zoning and permitted uses with San Jose Planning.
- Evaluate tenant protections and rent rules that apply to the asset type.
- Order structural, pest, and seismic inspections for older buildings.
- Confirm HOA dues, Mello‑Roos, and special assessments with title.
Identification
- Draft precise ID language with address, APN, and legal description.
- Deliver IDs to your QI by a tracked method and retain proof.
- Use the 3‑property or 200 percent rules to keep backups ready.
Closing
- Provide draft closing statements to your QI early.
- Ensure escrow references the exchange and follows QI wiring instructions.
- Match or exceed prior debt, or plan a cash injection to avoid mortgage boot.
Post‑close
- File Form 8824 with your tax return and keep all exchange docs.
- Review new depreciation schedules and your long‑term exit plan.
Ready to exchange into San Jose?
If you want a clear plan for identifying, inspecting, and closing within the IRS timelines in San Jose, reach out to HomesByNivi. You will get calm, design‑informed guidance, coordinated vendor support, and a tight execution plan that respects the 45 and 180 day clocks.
FAQs
What are the 45 and 180 day 1031 deadlines?
- You must identify replacement properties in writing within 45 calendar days of selling your relinquished property, and you must complete the purchase within 180 calendar days. See the IRS overview of Section 1031 timelines.
How do I identify replacement property in San Jose?
- Use precise, written identification with the street address, APN, and legal description, delivered to your QI by day 45. You can verify APNs with the Santa Clara County Assessor and confirm zoning with San Jose Planning.
What are the 3‑property, 200 percent, and 95 percent rules?
- You can list up to three properties of any value, any number of properties with a combined value up to 200 percent of what you sold, or more than that total if you acquire at least 95 percent of the value identified.
How do I avoid mortgage boot in a 1031?
- Match or exceed your relinquished property’s debt on the replacement purchase, or add cash or increase financing to cover any shortfall. Coordinate this with your lender during underwriting.
Can I do a reverse or improvement exchange in San Jose?
- Yes, but these structures add cost and require an exchange accommodation titleholder and strict documentation. They must still finish within 180 days. For structure details, see the FEA guidance on exchange accommodation.
