For real estate investors, few tools are as powerful as the 1031 Exchange. It allows you to defer capital gains taxes when you sell one investment property and reinvest in another of equal or greater value. But here’s the key: the process only works if it’s handled properly through escrow.
At LCD Capital Escrow, we specialize in guiding investors through these transactions with precision and care. In this post, we’ll walk you through how a 1031 Exchange escrow works, what makes it unique, and how you can avoid costly mistakes.
What Is a 1031 Exchange?
A 1031 Exchange, named after Section 1031 of the IRS tax code, lets investors sell one property and purchase another “like-kind” property while deferring capital gains taxes.
The advantages are clear:
Defer taxes and keep more money working for you
Grow your portfolio without losing equity to capital gains
Upgrade or diversify into new property types
But while the benefits are significant, the IRS enforces strict rules and deadlines, and escrow plays a central role in keeping everything compliant.
Why Escrow Is Different in a 1031 Exchange
Unlike a traditional escrow, a 1031 Exchange involves a few extra moving parts:
Qualified Intermediary (QI) – You cannot receive the sale proceeds directly. Instead, funds must be transferred to a QI, who holds them until the replacement property is purchased.
Strict Deadlines – Investors have 45 days to identify a replacement property and 180 days to close. Escrow ensures all documents, funds, and timelines align.
Multiple Transactions – Often, the sale of one property and purchase of another must be coordinated, which adds complexity.
The 1031 Exchange Escrow Timeline
Here’s a step-by-step breakdown of how escrow works in a 1031 Exchange:
Open Escrow on the Sale Property
Escrow instructions include notifying all parties that this is a 1031 Exchange.
A Qualified Intermediary is engaged immediately.
Sale Proceeds Go to the QI
Once the property sells, escrow ensures funds are wired directly to the QI—not the seller.
Start the 45-Day Identification Period
Within 45 days, you must identify up to three potential replacement properties in writing.
Escrow works closely with the QI to document this.
Open Escrow on the Replacement Property
Once you choose a property, escrow begins on the purchase side.
Funds are released from the QI through escrow to complete the transaction.
Close Within 180 Days
Escrow ensures all documents are recorded and deadlines are met.
Only then is the exchange successfully completed, allowing you to defer taxes.
How LCD Capital Escrow Supports 1031 Exchanges
Handling a 1031 Exchange requires more than just paperwork — it requires precision, experience, and proactive communication. At LCD Capital Escrow, we:
Coordinate directly with Qualified Intermediaries
Track strict IRS deadlines to avoid missed opportunities
Ensure all sale and purchase instructions are executed correctly
Guide investors through each step with clear communication
Our goal is to make your 1031 Exchange smooth, compliant, and stress-free.
Tips for Investors
Plan early: Don’t wait until after the sale closes to start your 1031 strategy.
Engage your escrow officer and QI at the same time.
Keep records in writing: Verbal agreements don’t count with the IRS.
Ask questions: It’s better to clarify early than risk disqualification.
Final Thoughts
A 1031 Exchange is one of the most powerful tools available to real estate investors — but it only works if every step is executed properly. Escrow is the backbone of that process, ensuring your funds and documents move exactly where they should, when they should.
At LCD Capital Escrow, we bring expertise and attention to detail to every 1031 Exchange we handle. If you’re planning to sell and reinvest, reach out today and let us help you maximize your investment while protecting your tax benefits.
👉 Contact LCD Capital Escrow to discuss your 1031 Exchange.