5 Common Mistakes in Arizona 1031 Exchanges and How to Avoid Them

Arizona’s real estate market has been growing rapidly, drawing investors to opportunities ranging from rental properties and vacation rentals to commercial developments. A 1031 exchange can help investors defer capital gains taxes and reinvest more of their earnings, but the process is highly regulated. One procedural slip can disqualify the exchange and trigger unexpected tax liability.

Below are five common mistakes people make in Arizona 1031 exchanges — and how to avoid them with confidence.

1. Missing the 45-Day Identification Window

The IRS requires investors to identify potential replacement properties within 45 days of selling their original investment property. This deadline is firm and cannot be extended, even if holidays, financing challenges, or market conditions get in the way.

Tip to Avoid This Mistake:

Create your list of possible replacement properties before you sell your original property. Submit your identification in writing to your Qualified Intermediary (QI) as soon as possible to ensure documentation is clear and timely.

2. Ignoring the 180-Day Closing Deadline

In addition to the 45-day identification period, you must close on the replacement property within 180 days of the sale. Delays in financing, inspections, construction, or contract negotiations can cause investors to miss the deadline.

Tip to Avoid This Mistake:

Start paperwork, lender conversations, and inspections early. Communicate frequently with brokers, title companies, and attorneys to keep the closing timeline on track.

3. Not Using a Qualified Intermediary (QI)

The IRS requires that the proceeds from the sale of your original property be held by a Qualified Intermediary, not by you. If the funds touch your personal or business account, even for a moment, the exchange is disqualified.

Tip to Avoid This Mistake:

Partner with a trusted Qualified Intermediary like Sunwest from the start. A QI handles escrow of exchange funds, manages documentation, and ensures proper reporting to comply with IRS rules.

4. Exchanging Property That Doesn’t Qualify

Not all properties qualify for a 1031 exchange. Primary residences, second homes used mainly for personal enjoyment, and properties held for quick resale (also known as flipping) do not qualify.

Tip to Avoid This Mistake:

Confirm that both the property being sold and the property being purchased are held for investment or business use. If you use a vacation rental, be prepared to document rental history and intent to support qualification.

5. Failing to Track Expenses and Documentation

Even if you meet all the timelines, missing or incomplete documentation can cause problems during tax reporting. The IRS expects clear records that show the property was held for investment and that proceeds were handled correctly.

Tip to Avoid This Mistake:

Keep detailed records, including:

• Closing statements

• Lease agreements (if applicable)

• Purchase and sale contracts

• Invoices for improvements or transaction-related costs

These documents help verify eligibility and support your tax deferral claim.

Navigate Your Arizona 1031 Exchange with Confidence

A 1031 exchange can be a powerful tool for growing your investment portfolio while deferring capital gains taxes — but only if the exchange is executed with accuracy and proper planning.

Sunwest provides guidance, secure fund handling, and step-by-step support to ensure your 1031 exchange meets Arizona and federal requirements.

Ready to get started? Get started with Sunwest to make your Arizona 1031 exchange smooth, compliant, and stress-free.