There are numerous things that can go wrong during a 1031 exchange of investment real estate. In this article, we are going to walk through some of the most common 1031 exchange mistakes and how to avoid them.
Mistake: Missing Your 1031 Exchange Deadlines
In a 1031 exchange, there are very specific and strict time deadlines. You only have a total of 180 days from the start of your exchange to the end of your exchange. That timeframe can be shortened if your federal tax filing deadline falls within your 180 day exchange period. In this situation, your exchange needs to be completed by your tax filing date. Going beyond these deadlines is a nonstarter. Your exchange will fail if you miss these deadlines.
Mistake: Failing to Identify Your Replacement Property
You also have another deadline to keep in mind – the 45 day identification deadline. This timeline runs concurrently with your 180 day exchange timeline. During this 45 day period, you have to give written identification of the replacement properties you intend to use in your exchange. If you do not identify a property within this time period, you cannot exchange into it.
Mistake: Not Reinvesting All of Your Sales Proceeds
A 1031 exchange is meant to be a continuation of your initial investment. To that end, you need to reinvest 100 of your sales proceeds from your relinquished property into your replacement property. If you take any of these proceeds as cash, that will be considered taxable boot and you will not be able to defer 100% of the gains.
Defer 100% of Your Capital Gains Tax Burden
Let the qualified intermediaries at CPEC1031, LLC help bring your like-kind exchange of real estate across the finish line! Our team has decades of experience facilitating forward, reverse, and build-to-suit 1031 exchanges. We work with clients across the state of Minnesota and throughout the entire United States. Regardless of where your property is located, we can help you through the 1031 exchange process and do everything possible to ensure you can defer 100% of your capital gains tax burden. Learn more about our services by contacting us at our downtown Minneapolis office today.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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