How to Unwind a 1031 Exchange

Unwinding a 1031 Exchange

Sometimes taxpayers contemplating a 1031 exchange will say “what if we don't identify any replacement properties, or what if we can't jump through the hoops - how do we unwind a 1031 exchange?”

Set Up the Exchange

At the beginning of this process you may not have all of the mysteries solved, but you know that you want to keep your options open and you want to keep them open as long as possible.

So the first thing to do is to set up the 1031 exchange before the sale of your old property so that the proceeds don't go to you and become taxable immediately, but instead go to the qualified intermediary.

Then you have 45 days to identify replacement properties. So you can use all of the time before closing and 45 days thereafter to figure out if this is something you want to do. If it's something you want to do, you’ll identify replacement properties to keep hope alive for the remaining 135 days in your exchange period.

If You Don't Identify

If you don't identify no big deal. We'll return the exchange funds to you on the next business day after the 46th day and get you your exchange funds back and you'll just pay taxes on it as if it was a taxable sale. The most you're out is a little bit of brain damage and the minimal exchange fee that we would have charged at the first closing.

Keep all of your options open as long as possible. Investigate all of these potential outcomes and hopefully you get the most tax-efficient result at the end of this process.

  • 1031 Hotline: If you have questions about unwinding a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

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