9. Pitfalls to Avoid — Costly 1031 Exchange Mistakes Even Pros Make

Welcome to Part 9 of our 1031 Exchange Blog Series.
By now, you know the power of a 1031 Exchange—but you also need to know the risks.

Even experienced investors in Brooklyn and beyond have lost tens of thousands of dollars by missing key requirements.

Let’s break down the most common—and costly—1031 mistakes, and how to avoid them.

 Mistake #1: Missing IRS Deadlines

You have:

• 45 days to identify your replacement property

• 180 days to close the exchange

These are calendar days—including weekends and holidays.

The New York Times has reported on investors who missed deadlines by a single day and were hit with a full tax bill.

✅ Solution: Start your search early and work with a broker and QI who will keep you on track.

 Mistake #2: Touching the Funds

If the proceeds from your sale hit your bank account—even for a moment—your exchange is disqualified.

This is why using a Qualified Intermediary (QI) is not optional.

The Real Deal warns of cases where deals fell apart simply because the investor didn’t set up a QI in time.

✅ Solution: Hire your QI before your first property closes.

 Mistake #3: Choosing the Wrong Replacement Property

Not all real estate qualifies. Personal residences, vacation homes, and flips do not count.

The replacement must be like-kind and held for investment or business use.

The Wall Street Journal has profiled several IRS audits of investors who claimed 1031 status—but failed to meet the “intent to hold” requirement.

✅ Solution: Clarify your strategy and timeline before committing to a new asset.

 Mistake #4: Poor Documentation

Missing identification paperwork or failing to document your intent properly can kill your exchange.

This is especially true in multi-property or improvement exchanges.

✅ Solution: Lean on professionals—your QI, your attorney, and your broker—to keep every document in order.

 Mistake #5: Rushing the Process

Trying to execute a 1031 Exchange at the last minute can lead to:

• Overpaying for the replacement

• Accepting poor terms

• Failing to complete construction or due diligence

✅ Solution: Give yourself time. At Pen Realty, I help investors plan before the sale, not after.

 Final Thought

A 1031 Exchange can be an amazing wealth-building tool—but only if you stay compliant and avoid preventable errors.

 Let’s Exchange Smarter, Not Harder

Whether you’re planning your first exchange or your fifth, I’m here to help you avoid costly mistakes and maximize your returns.

📧 Email: [email protected]
📞 Call/Text: 917.916.5126
▶️ Watch the vlog series: @pmpenrealty

👉 Final post coming soon: Is a 1031 Exchange Right for You?