Question
ARTE's Answer
When engaging in a 1031 exchange, timing is crucial to ensure compliance with IRS regulations and to successfully defer capital gains taxes. The process involves two critical timeframes: the 45-day identification period and the 180-day exchange period. Let me break these down for you:
- 45-Day Identification Period: Once you sell your relinquished property, you have 45 days to identify potential replacement properties. This period begins the day after the sale of your relinquished property. During this time, you must formally identify the replacement property or properties in writing. The identification must be specific, including the property address or a legal description, and it must be delivered to a person involved in the exchange, such as your qualified intermediary. At Deferred.com, we act as your qualified intermediary, ensuring that your identification is properly documented and submitted within this timeframe.
- 180-Day Exchange Period: After selling your relinquished property, you have 180 days to complete the purchase of your identified replacement property. This period also starts the day after the sale of your relinquished property. The replacement property must be acquired by the earlier of 180 days or the due date of your tax return for the year in which the relinquished property was sold, including any extensions. This means if your tax return is due before the 180 days are up, you must complete the exchange by the tax return due date.
Example: Let's say you sold your investment property on January 1st. You would have until February 15th (45 days) to identify potential replacement properties. Then, you would have until June 30th (180 days) to close on the purchase of one or more of those identified properties. If your tax return is due on April 15th and you don't file for an extension, you would need to complete the exchange by April 15th instead of June 30th.
At Deferred.com, we facilitate this process by holding the proceeds from your relinquished property sale and ensuring that the funds are used to acquire the replacement property within the specified timeframes. Our "No Fee Exchange" service helps you save money while adhering to the IRS guidelines, making the process smoother and more cost-effective.
It's important to note that these timeframes are strict and non-negotiable. Missing either deadline can disqualify the exchange, resulting in the recognition of capital gains. Therefore, careful planning and coordination with your qualified intermediary, like us at Deferred.com, are essential to successfully completing a 1031 exchange.
Have more questions? Call us at 866-442-1031 or send an email to support@deferred.com to talk with an exchange officer at Deferred.
Sources
- Goolsby v. Commissioner
- What To Do About Exchange Expenses in a Section 1031 Exchange? (Article)
- TAM 200039005 (Failed Reverse Exchanges)
- Orville Christensen v. Commissioner TC Memo 1996-254
- How Long to Hold (Article)
- Rev. Rul. 2002-83 (Related Party Exchanges)
- Deferring Losses On The Sale of Property Using 1031 Exchanges
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