The Exchange Period refers to the time frame during which a taxpayer who has sold a property must acquire a replacement property to complete the exchange. This period is defined by IRS code Section 1031.

There are two critical deadlines that define the Exchange Period:

Identification Period: This is the first phase of the Exchange Period. The taxpayer has 45 days from the date of selling the relinquished property to identify potential replacement properties. The properties must be detailed in a written document and sent to the person involved in the exchange.
Exchange Period: This is the overall duration within which the exchange must be fully completed. The taxpayer has 180 days from the date of selling the relinquished property or until the due date of the income tax return for the tax year in which the relinquished property was sold, whichever occurs first, to close on the replacement property.

The two periods run concurrently, meaning that the 45-day identification period is part of the 180-day exchange period. If these timelines aren’t followed, the 1031 exchange fails, and the taxpayer will be liable for taxes on any gain realized from the sale of the original property.