Exchange Resource Group

Top 3 Mistakes in 1031 Exchanges

Have you heard the phrase “Prior proper planning prevents poor performance”? Well, prior proper planning is crucial to completing a successful 1031 exchange. Many investors make the mistake of not planning ahead and working with a Qualified Intermediary who would be able to help them prepare for their exchange.


Mistake #1: Not engaging a Qualified Intermediary (QI) prior to closing


We receive calls a couple times a month from investors who have just sold their investment properties and want to complete an exchange, but they failed to contact a QI prior to closing. The QI must be in place and the exchange must be set up PRIOR to the closing of the sale. Since the investor failed to do so, they are unable to complete an exchange and are staring at a large tax bill.


Mistake #2: Failing to identify properties by the 45 day deadline


45 days goes by really fast! Many investors do not plan ahead and end up failing to find properties they can purchase as part of their exchange. The IRS requires the taxpayer to identify the replacement properties within 45 days of the closing of the sale. Many investors are not able to identify properties by the deadline or identify properties that end up falling through after their identification date (they are unable to add new properties after the deadline). The key to avoid this mistake is to plan out your exchange and start looking for your replacement property early on in the process so as to avoid issues with the deadline.


Mistake #3: Not meeting the reinvestment goal

There is a common misunderstanding with 1031 exchanges that you only need to reinvest the gain on the sale. This is incorrect and will result in a taxable event for the investor. The IRS allows the tax deferral with a 1031 exchange, but in order to defer 100% of the gain, you must buy a property(ies) equal or greater in value to the property you sell. This is referred to as the Reinvestment Goal. The easiest way to calculate it is by taking your sales price minus your closing costs. This equation will give you the number of what needs to be reinvested in order to achieve complete tax deferral. As long as you reinvest equal to or greater than that amount, you will be able to fully claim the deferral through your exchange. Any amount short of this number will result in a taxable event for the investor.

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Upcoming Classes with ERG

2 Hr CE 1031 Exchange Advanced Topics, hosted by Homestead Title


September 19, 2023


8480 E Orchard Rd Ste 4200, Greenwood Village, CO 80111


10:00 AM - 12:00 PM (MST)


Sarah Beezley - U.S. Bank Home Mortgage,, 303-738-2226

2 Hr CE 1031 Exchange Advanced Topics, hosted by Citywide Home Loans


September 20, 2023


In Person

7995 E Hampden Ave, Denver, CO 80237


12:00 PM – 2:00pm (MST)


Jonathan Edwards, (720) 574-1799

The Basics of a 1031 Exchange Class and Q&A


October 4, 2023


Zoom Only


10:00 AM - 11:00 AM (MST)


Caleb Ernst

209-402-5053 -

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Employee Spotlight: Ken Palmen

Ken dove into the world of 1031 Exchanges by co-founding and heading up a Qualified Intermediary company in Denver in 2012. In early 2019, he and the McCabe family saw a mutual opportunity for him to sell his firm to ERG and come aboard. Ken has been a Certified Exchange Specialist (CES)® since 2016 and currently serves on the CES Council, a national group affiliated with the Federation of Exchange Accommodators (FEA), which is dedicated to furthering Qualified Intermediary awareness, expertise and ethics.

A Colorado native, Ken ventured to Arizona long enough to earn dual undergraduate degrees from ASU, to find his bride (also a Colorado kid) and to realize there's no place like Colorful Colorado. Since returning in the mid-90s, Ken has been a member of several executive teams in the greater Denver area, has earned an MBA from Regis University and has reveled in the fatherhood of two fantastic children. In his free time he enjoys all things soccer and taking in many of the activities Colorado is famous for with family, friends and the family dog, Nellie.

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