Structures
The Four Types of 1031 Exchange
The tax treatment is identical in all four. What changes is the order of the transactions in the 1031 exchange process — and the order is what drives the cost and the complexity.
The short answer
| Type | Order | Typical cost | Share of exchanges |
|---|---|---|---|
| Delayed | Sell, then buy | $800 – $1,500 | ~90% |
| Reverse | Buy, then sell | $4,000 – $7,500+ | Under 10% |
| Improvement | Buy and build, then take title | $4,000 – $7,500+ | Uncommon |
| Simultaneous | Both on the same day | $800 – $1,500 | Rare |
Delayed (forward) exchange
The standard case, and the one the main guide on how a 1031 exchange works. You sell the relinquished property, the qualified intermediary holds the proceeds, and you buy the replacement within the 45- and 180-day windows.
It is sometimes called a Starker exchange, after the 1979 case that established that the sale and the purchase need not be simultaneous. That decision is the reason the modern exchange industry exists at all.
Use it when
- You can sell before you need to buy — the normal situation
- Your replacement property is available on the open market
- You want the cheapest and least complicated structure
The constraint
You are shopping against a clock, in a market that does not care about your clock. If inventory is thin, 45 days to identify is uncomfortably short.
Reverse exchange
You acquire the replacement property first and sell afterwards. This solves the delayed exchange’s central problem: you no longer have to find a property under deadline pressure, because you have already bought it.
The complication is that you cannot own both properties at once and still have an exchange — you would simply have bought a property. So an Exchange Accommodation Titleholder, an entity formed by your intermediary, takes title to one of them. Once your relinquished property sells, title passes to you and the exchange completes.
The same 45- and 180-day deadlines apply, counted from the day the EAT acquires the property. You have 45 days to identify which property you will sell, and 180 days to sell it.
Use it when
- The replacement property is one you cannot afford to lose — an off-market deal, or a competitive listing
- Your sale is slow, complicated, or uncertain in timing
- You have the liquidity or financing to buy before you sell
Improvement exchange
Also called a construction or build-to-suit exchange. Part of the proceeds is spent improving the replacement property before you take title, so that its finished value satisfies the equal-or-greater-value test.
This is the answer to a specific problem: you sold for $2,000,000, the property you want costs $1,600,000, and without doing something you would have $400,000 of taxable boot. Put that $400,000 into improvements while the EAT holds title, and the replacement is worth $2,000,000 when it comes to you.
Simultaneous exchange
Both closings happen on the same day. This was the original form of the exchange, before the Starker decision made delayed exchanges possible, and it is now rare.
The reason is practical. Aligning two sets of buyers, sellers, lenders and title companies on a single date is difficult, and if either side slips the whole thing is at risk. A delayed exchange has a well-established safe harbour and far more tolerance for the ordinary friction of real estate. Even where a same-day close is possible, most advisors will run it as a delayed exchange anyway.
Which one applies to you
In practice the structure chooses itself, based on one question: can you sell before you have to buy?
| Your situation | Structure |
|---|---|
| You can sell first and buy within 180 days | Delayed exchange |
| You must secure the replacement property now or lose it | Reverse exchange |
| The replacement costs less than what you sold, and you would rather build than pay tax on the difference | Improvement exchange |
| Both sides can genuinely close the same day | Delayed exchange anyway — the safe harbour is worth more than the elegance |
Questions about exchange types
What is the most common type of 1031 exchange?
The delayed exchange, also called a forward or Starker exchange. You sell first, a qualified intermediary holds the proceeds, and you buy within the 45- and 180-day windows. Roughly nine out of ten exchanges take this form, and it is the cheapest and simplest structure.
How does a reverse 1031 exchange work?
You buy the replacement property before selling the relinquished one. Because you cannot hold title to both and still qualify, an Exchange Accommodation Titleholder — a separate entity formed by your intermediary — takes title to one of them in the meantime. Once your sale closes, title is transferred to you and the exchange completes. The same 45- and 180-day deadlines apply, counted from the date the EAT acquires the property.
Why do reverse exchanges cost more?
Because an entity has to be formed and operated. The Exchange Accommodation Titleholder is a real legal entity that holds real property, needs its own documentation, and carries insurance and carrying costs. Reverse exchanges typically start around $4,000 and often run to $7,500 or more, against $800 to $1,500 for a delayed exchange.
What is an improvement exchange?
One where part of the exchange proceeds is spent constructing or improving the replacement property before you take title to it. It solves the problem of a replacement property that costs less than what you sold: the improvements count toward the equal-or-greater-value test, provided they are completed and paid for within the 180-day window while the EAT still holds title.
Can improvements made after I take title count?
No. Money you spend improving a property you already own does not count toward the exchange. The work has to be done while the Exchange Accommodation Titleholder holds title and has to be paid for out of exchange funds within the 180 days. This is the constraint that makes improvement exchanges tight on timing.
Is a simultaneous exchange still used?
Rarely. It requires both closings to happen the same day, which means perfectly aligned buyers, sellers, lenders and title companies. Almost every exchange that could be simultaneous is run as a delayed exchange instead, because the delayed structure has a safe harbour and a simultaneous one has less room for error.
Not sure which structure you need?
The Easy1031 exchange desk will tell you which one fits your transaction — and a standard forward exchange costs nothing to set up.
Easy1031 publishes this guide. It is a qualified intermediary, so it has a commercial interest in you starting an exchange — worth weighing, and worth comparing against other intermediaries before you commit.