With tax season upon us, many taxpayers have questions about how and when to report a 1031 exchange on their return. This article answers some common questions about 1031 exchange tax reporting.
When to Report the Sale & Acquisition
If you sell a piece of property in a particular tax year, you probably don’t report that sale and the subsequent purchase of your replacement property until April 15th of the next year.
Well congress and the IRS have said that when a 1031 exchange crosses over into the new tax year you have 180 days normally to complete the exchange, but the 180th day is shortened down to the due date of the filing of your federal income tax return. The reason that they shorten the 180 day exchange period is that they don’t want to have to wait until the next year to see how this story unfolds with the acquisition of the replacement property.
Getting the Full Use of Your Exchange Period
So most taxpayers that file on April 15th but haven’t yet completed their 180 day exchange period will file for an automatic extension of the April 15th filing deadline, and move it out to October. The reason that they do that is they want to get the full use of their hundred and eighty days so they can acquire the replacement property. That way when they filed a tax return the whole story will be shown on form 8824. They’ll see the sale of the property first and then the acquisition of the replacement. You don’t want to send in your tax return before you’ve completed the circuit on the disposition and acquisition of your properties.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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