How does a §1031 exchange coordinate with CRE loan and debt timing?

Aligning the placement timeline with the exchange windows

This page is sponsor-POV process commentary, not tax or legal advice. Bring a CPA and tax counsel onto every transaction before relying on any of the mechanics described below.

Day 1 of the exchange clock starts when the relinquished property closes. The sponsor has 45 days to formally identify replacement properties to the qualified intermediary. Completion is the earlier of 180 days after the sale and the due date of the exchanger's return for that year, including extensions. New debt placement must close by that deadline or the deferred gain becomes immediately taxable.

Mortgage-boot trap: the IRS treats a reduction in mortgage liability between the relinquished and replacement properties as taxable boot. If the relinquished property carried $20M of debt and the replacement carries $15M, the $5M reduction is taxable gain unless the sponsor offsets with $5M of additional cash. Underwrite replacement debt to at least match the relinquished mortgage balance.

Practical placement timing: start the lender comparison the day the purchase contract goes hard on the relinquished property, not after closing. Most lenders can issue a term sheet inside 14 days and close inside 60 days, well within that completion deadline, but only if the package is ready and the comp set is institutional. Bridge lenders are typically faster than agency.

Reverse exchange option: if the replacement property must close before the relinquished sale, an exchange accommodation titleholder (EAT) parks title for up to 180 days. Reverse exchanges are more expensive (additional EAT fees plus interim financing) and require lenders comfortable with the EAT structure, typically bridge debt funds and a few banks.