What to do if Your 1031 Exchange Straddles Two Years

We get calls from people all the time who have already completed the sale of their property and want to set up a 1031 exchange after the fact. Unfortunately, once you’ve completed the sale of your property, the opportunity for an intermediary to set up a 1031 exchange has expired. In other words, you can’t set up a 1031 exchange after the fact. This just emphasizes the importance of preparation and planning when it comes to 1031 exchanges. You have to get all of your ducks in a row before the closing of the relinquished property.

1031 Exchange that Straddles Two Years

Let’s say you are looking to sell a property in late December. If you sell that property and put your proceeds with a qualified intermediary intending to do a 1031 exchange, but the exchange fails in the subsequent year (perhaps for failing to identify a replacement property). When a 1031 exchange straddles two separate years like this, there are certain details that need to be considered. There is some nice interplay between code section 453 (the installment tax rules) and section 1031 that would allow you even in a failed 1031 exchange to defer those gains on the receipt of the cash that’s not received until the subsequent year. So even if you’re on the fence about whether or not to do a 1031 exchange at the end of a year, it may be beneficial to set up a 1031 exchange to keep the option open to at least get a 1 year tax deferral.

Benefits of 1031 Exchanges

At CPEC1031, we focus on helping owners of real estate defer their taxes when selling appreciated real estate. When selling real estate, your gains can come from the natural appreciation that occurs over time or from depreciation deductions that whittle down your basis over time. The goal with a 1031 exchange is to defer your gains and keep that money that would otherwise go off to the state or federal government and use that money to compound and build your wealth over time.

  • 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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Defer the tax. MAXIMIZE your gain.