Despite the best preparation – 1031 exchanges sometimes fail. But there are options for salvaging what’s left of your exchange. In this article, we are going to discuss some options for what to do when your 1031 exchange of real estate fails.
What Happens When a 1031 Exchange Fails?
First off, what do we mean when we say “failed” 1031 exchange? A failed 1031 exchange is an exchange in which the taxpayer is not able to defer their capital gains taxes on the sale. Failed exchanges can be caused by a number of factors, including:
- Constructive receipt of taxable boot by the taxpayer conducting the exchange
- Failure to complete the exchange process within the 180 day time period
- Failure to abide by the property identification rules, qualifying purpose rules, or any other guidelines set out by the IRS for 1031 exchanges.
Failed Exchange Options
If your exchange fails, you have several options. You can simply take the sales proceeds and pay the required capital gains taxes as you would in a typical sale. A more tax efficient option would be to convert the failed 1031 exchange into a Deferred Sales Trust (DST) – an alternate method for deferring taxes.
1031 Exchange Companies
At Commercial Partners Exchange Company, we have over two decades of experience working with clients in all different business sectors on their 1031 exchanges of real estate. With the level of experience, we bring to the table, you can rest assured that your exchange is in good hands. We can help you organize all the elements of your exchange, including your documentation and replacement properties. Contact us today at our downtown Minneapolis office to set up a time to chat about your exchange with one of our intermediaries.
- 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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