Many taxpayers who are considering a 1031 exchange wonder why most people structure their transactions as delayed 1031 exchanges. That's our topic for this article.
Back in the pre-1991 days, many people were doing exchanges as simultaneous horse swaps, where one taxpayer exchanged directly with another taxpayer. The two would basically simultaneously swap the same types of properties. That works great if you want the property the other guy has, and the other guy wants the property that you have. But if each taxpayer doesn’t have the exact same property that the other wants, it doesn't work.
Benefits of a Delayed Exchange
In a delayed exchange you can sell your relinquished property to one party that wants your property and then later (up to 180 days later) purchase your replacement property from someone completely different. So the great advantage of doing a delayed or deferred exchange is that you have time and flexibility to purchase your replacement property from somebody different than the party that you sold your relinquish Property to.
Be sure to set-up your delayed exchange with a qualified intermediary BEFORE you close or dispose of your old relinquished property because you need to insulate yourself from receiving the sales proceeds and also comply with certain 1031 rules and regulations in order to have a valid delayed exchange such as:
- having a signed exchange agreement with the qualified intermediary;
- giving certain required notice to the other parties to your sale and purchase contracts, identifying in writing within 45 days what replacement properties you want to receive, and completing your exchange within 180 days or the due-date of your federal tax return for the year in which your relinquished property is sold.
- 1031 Hotline: If you have questions about delayed 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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