There are critical timeframes you must follow when you are doing a delayed 1031 exchange. The key numbers are 180 days (the total amount of time you have to complete your exchange) and 45 days (the amount of time you have to make either receive your replacement property or submit your written identification).
180 Day Period
The maximum time frame that you have to complete a 1031 exchange is 180 days. That 180 day period starts the day after closing (the day after the date of closing).
Within that 180 day time frame, there is a 45 day window in which you must make a written identification designating what replacement properties you want to receive in your exchange. After the 45th day, you have 135 days remaining in the total exchange period.
How to Identify
If you close on and receive your replacement property during that 45 day window, you are considered to have identified the property. There is no need to make a written identification if you have already received the property. However, if you’re not going to receive your property within that 45 day window, you must make a written identification. Anything received after the 45th day will not be considered like-kind unless it was properly identified.
A Common Trap
Here is a common trap many people fall into during a 1031 exchange. While 180 days is the general timeframe for 1031s, that is not always the case. The IRS wants to see the sale of your relinquished property on the same tax return as the purchase of your new replacement property. So if you have a federal income tax filing deadline pop up within that 180 days, then you only have until your filing deadline, rather than 180 days.
Here’s an example – let’s say that you close on the sale of your relinquished property on December 20th. If you are an individual, you would file your tax return on April 15th. As you can see, there are not 180 days between December 20th and April 15th. Unless you ask for a filing extension from the IRS, you will not have 180 days to complete your exchange.
Things get more complicated when the exchange is done by a business. S corporations and C corporations may have to file on March 15, rather than April 15. So you need to know when your tax deadlines are to ensure that you have 180 days, or that you file an extension with the IRS.
Get Help with Your 1031 Exchange
A qualified intermediary can help you avoid these common pitfalls and make sure your 1031 exchange goes smoothly. Contact us today to talk about your options for deferring tax on your property exchange - 612.643.1031.