There are a few ways in which a 1031 exchange can fail. In this article, we are going to discuss what your options are when a 1031 exchange fails.
Missed Deadlines
One of the most common reasons for failure is missing a deadline. The 1031 exchange process is governed by strict deadlines that you must hit in order to complete a successful exchange. Specifically, you have 180 days from the start of your exchange to the finish of your exchange. The first 45 of those days are your replacement property identification period, during which you must give written identification of your replacement property. If you go beyond either of these deadlines, your exchange will fail and you will not be able to defer your capital gains taxes.
Receiving Taxable Boot
The other common cause of failure in a 1031 exchange is receiving cash boot during the process. A 1031 exchange is meant to be a continuation of your investment. To that end, you must redeploy all of the sales proceeds from the sale of your relinquished property into your replacement property. If you pocket any of the sales proceeds or take any cash off the table during the process, that is considered taxable boot that you will not be able to defer your capital gains taxes on.
Save Money in Capital Gains Taxes
With a 1031 exchange, you can save money in capital gains taxes when selling investment or business real estate. A like-kind exchange under section 1031 of the Internal Revenue Code can be done with any like-kind US property so long as all property involved is held for the purposes of investment or business use. A qualified intermediary, such as those at CPEC1031, can help facilitate the 1031 exchange process and ensure you are able to defer 100% of your capital gains tax burden. Contact us today to learn more about the 1031 exchange process and see what the first steps are to exchange your property!
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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