1031 Exchange Frequently Asked Questions from DFW Retail and Industrial Investors
The following questions and answers reflect the issues that most frequently arise in DFW retail and industrial 1031 exchange planning. This section is not a substitute for advice from a qualified tax professional. It is a practical reference for investors working through the real estate component of their exchange.
1) What is the 45-day identification deadline and what counts as a valid identification?
From the date the relinquished property closes, the investor has 45 calendar days to identify replacement properties in writing to the Qualified Intermediary. The identification must be in writing, signed, and delivered to the QI within the deadline, not postmarked, not emailed without confirmation. The three-property rule allows identification of up to three properties without restriction on value. The 200% rule allows more than three properties if their combined fair market value does not exceed 200% of the relinquished property’s sale price. The 95% rule allows any number of identified properties if the investor actually acquires 95% of their combined value. In practice, identifying three properties with one or two backups is the most common and defensible approach.
2) What happens if I miss the 45-day deadline?
The exchange is disqualified. The deferred capital gains become taxable in the year the relinquished property was sold, with no extensions available regardless of circumstances. The IRS does not grant waivers for missed 1031 exchange deadlines. This is why pre-sale planning and an early start on replacement property identification are not optional. The 45-day window is not long enough to begin property research from scratch after the relinquished property closes.
3) Can I exchange a retail shopping center for an industrial property in Texas?
Yes. The like-kind requirement under IRC Section 1031 applies broadly to real property held for investment or business use. A retail shopping center qualifies as like-kind to an industrial warehouse, a net-leased restaurant pad, or an industrial distribution facility, provided both properties are held for investment or productive use in a trade or business. The asset class does not have to match. The use must. Property held for personal use does not qualify.
4) Do I need to use all of my exchange proceeds to fully defer capital gains?
To defer 100% of capital gains, the replacement property must be equal to or greater in value than the relinquished property, and all net proceeds must be reinvested. Any portion of proceeds not reinvested, called ‘boot’, is taxable in the year of the exchange. Boot can be cash received, debt relief, or personal property received as part of the exchange. A partial exchange is possible: if the investor accepts some boot, the taxable portion is proportional. The CPA determines the exact tax treatment; the real estate advisor determines whether the replacement property structure achieves the investor’s reinvestment target.
5) What is the role of the Qualified Intermediary and who selects them?
The Qualified Intermediary holds the exchange proceeds between the sale of the relinquished property and the purchase of the replacement property. The QI is not an agent of the investor, this independence is required for the exchange to qualify. The investor selects the QI before the relinquished property closes. EBG does not provide QI services and does not receive compensation from any QI referral. For exchanges involving $5M or more in proceeds, EBG recommends evaluating QIs that hold funds in regulated trust structures, most QIs are not regulated, which creates real counterparty risk at this transaction size.
6) What does the 2025 Big Beautiful Bill change about 1031 exchange strategy?
The Big Beautiful Bill, as proposed, includes provisions that would modify certain capital gains treatment and bonus depreciation rules, both of which interact with 1031 exchange strategy. The exact impact depends on the bill’s final enacted form and effective date. Investors planning exchanges in the current tax year should review the bill’s current status with their CPA before finalizing the disposition timeline. EBG monitors material tax developments that affect DFW retail and industrial exchange planning and addresses them in the 1031 Playbook as provisions are enacted.
7) How do I find a good replacement property in DFW within the 45-day window?
The honest answer is that you should not be starting the property search on day one of the 45-day window. The replacement property identification should begin during the pre-sale phase, before the relinquished property closes. By the time the exchange clock starts, the investor should have a short list of qualified candidates with submarket context completed and preliminary financial analysis done. The 45 days is the deadline for the formal written identification, not the starting point for due diligence.
8) Can I identify more than three replacement properties?
Yes, subject to the 200% rule or the 95% rule. The 200% rule allows identification of more than three properties if their total fair market value does not exceed 200% of the relinquished property’s sale price. The 95% rule allows any number of identified properties if the investor actually acquires at least 95% of their combined fair market value. In practice, identifying more than three properties under the 200% rule is a reasonable backup strategy when multiple viable candidates exist and the investor wants flexibility. It is rarely advisable to rely on the 95% rule due to its stringent acquisition requirement.
9) What is a reverse 1031 exchange and when does it make sense in DFW?
A reverse exchange allows the investor to acquire the replacement property before selling the relinquished property. This is used when a specific replacement asset is available and the investor cannot risk losing it to the 45-day constraint. The replacement property is held by an Exchange Accommodation Titleholder during the process, and the investor has 45 days from the replacement property acquisition to identify the relinquished property and 180 days to close the sale. Reverse exchanges are more complex and more expensive than standard exchanges, they are appropriate when a specific replacement opportunity justifies the additional structure.
GETTING STARTED
How to engage EBG on a 1031 exchange
If you are planning a sale that will trigger a 1031 exchange, the right time to engage is during the pre-sale phase, before any listing agreement is signed and before any offers are accepted. The pre-sale engagement does not require a commitment to list with EBG. It requires a conversation about your exchange criteria and timeline so that the replacement property search can begin before the clock does.
If your exchange is already underway, the relinquished property has closed and the identification window is open, contact EBG directly. The remaining work is time-constrained and the engagement begins with an immediate review of your criteria and the current DFW inventory against them.
Investors from outside DFW directing exchange proceeds into the Dallas-Fort Worth market: the starting point is the same direct conversation. The advisory engagement is structured to provide the local submarket context that out-of-state investors need to evaluate DFW replacement candidates with confidence.
Joseph Gozlan, Managing Principal
Eureka Business Group | DFW Retail Investment and Capital Markets Advisors
(903) 600-0616 | Joseph@EBGTexas.com
