Can my exchange partly succeed if one replacement closes and another doesn't?

Under the three-property and 200% rules, one closing out of three identified is a complete exchange

Reg. §1.1031(k)-1(c)(4) lets you identify three properties without regard to value, or any number whose combined value stays within 200% of what you sold, and nothing in the rule obliges you to buy them all. As Legal 1031 puts it, the exchanger 'can acquire one or more of the three properties'.

The property you close must be substantially the same as the one you identified (paragraph (d)(1)), and it must be received by day 180 or your return due date if earlier. The property that died simply lapses; you do not withdraw it, and its collapse has no effect on the deferral attached to the one you bought.

How many names your list may carry, and how to write a DST onto it, are in how many properties can I identify and our DST backup guide.

The 95% exception is the one case where a single dead deal takes the whole exchange down

If you identified more than three properties and their combined value exceeded 200% of your sale, your identification is valid only if you receive property worth at least 95% of everything on the list before the exchange period ends. Legal 1031's example is direct: 'If the purchase of one of the properties fell through, the entire 1031 exchange will be disqualified because the exchanger did not acquire 95%' of the identified value.

In that situation the building you did close is not treated as like-kind replacement property at all, and the entire sale is taxable. Before day 45 the fix is to trim the list back inside the three-property or 200% limits; after day 45 the only cure is closing on enough of the list to reach 95%.

Boot is everything that did not get reinvested: leftover cash plus debt you did not replace

§1031(b) recognizes gain to the extent of the money and other property you receive, and the Form 8824 instructions build that number on line 15: cash received, plus the value of any non-like-kind property, plus net liabilities the other party assumed, reduced by your exchange expenses. Line 20 then caps the recognized gain at the smaller of line 15 or your realized gain on line 19.

Debt nets against debt and against cash you add, but cash that comes back to you cannot be offset by borrowing more on the replacement. The definitions are in what is boot and the debt-versus-cash rules in replace the mortgage or add cash.

Worked example: $1,200,000 in the exchange account, $900,000 closes, $300,000 comes back

Hypothetical, round numbers, exchange expenses ignored. You sold for $1,500,000, paid off a $300,000 loan at closing, and the QI received $1,200,000; your adjusted basis was $600,000, so the realized gain is $900,000. You identified buildings A and B, closed A at $1,200,000 using $900,000 of exchange cash plus a new $300,000 loan, and B's seller walked.

The federal tax on the $300,000 lands between $56,400 if all of it is taxed at 15% plus the 3.8% NIIT and $86,400 if all of it is unrecaptured §1250 gain at 25% plus NIIT. Which layer the boot hits first is its own question, answered in recapture or capital gain first; your CPA or attorney should run the split before you decide whether to leave the $300,000 on the table.

• Line 15 boot: $300,000 of cash returned; the $300,000 loan relieved nets against the $300,000 loan assumed, so no mortgage boot.
• Line 19 realized gain: $1,500,000 received less $600,000 basis = $900,000.
• Line 20 recognized gain: the smaller of $300,000 or $900,000 = $300,000; line 24 deferred gain $600,000.
• Line 25 basis in building A: $600,000 + $300,000 recognized − $300,000 boot = $600,000, half its purchase price, so depreciation restarts from that lower number.

A DST already on your list can take the $300,000 to the dollar before day 180

Because the leftover is still with the QI, it can go into any property that was identified by day 45, and a Delaware Statutory Trust interest is the one replacement that accepts an odd amount. 1031 Crowdfunding describes choosing 'your exact investment amount' to reinvest full proceeds, cites minimums of $25,000 to $100,000, and says its platform can close a DST 'in 3-5 business days'.

That works only if the DST was on the identification notice; nothing can be added after day 45. A DST's share of trust-level debt can also cover replacement debt you fell short on (does a DST's loan count), and the sizing arithmetic is in DST minimums and sizing.

Breakwater Exchange works with vetted national DST sponsors and is licensed in all 50 states within a regulated broker-dealer framework; if a trust is on your list, we can show you which offerings are open and how fast their subscription documents move (how quickly a DST can close).

Reporting: one Form 8824, with the $300,000 flowing to Form 4797 or Schedule D

Publication 544 requires Form 8824 for the exchange whether or not gain is recognized, and a partial exchange is still an exchange. Lines 15, 19 and 20 carry the boot and recognized gain above; line 21 pulls out any ordinary recapture, line 22 sends the balance to Schedule D or Form 4797, and line 25 fixes the new basis.

If the QI returned the $300,000 in the year after the sale, the payout counts as a payment under the installment rules (Reg. §1.1031(k)-1(j)(2)) and Form 6252 joins the return (installment treatment of a next-year payout). Reporting several closings or several DSTs on one form is in Form 8824 with multiple properties.