45 Days / 180 Days
If you are doing a forward exchange, you will have 45 days from the relinquished property sale date to identify to us in writing replacement property(ies) you might buy to complete the exchange and 180 days (also beginning on the sale date) to close on the purchase of property you identified in the first 45 days. If you are doing a forward construction exchange, you can end the exchange before the 180th day if the combined value of the purchased replacement property plus the value completed construction improvements on it equals or exceeds the Target Replacement Value (“TRV”) for the exchange. The TRV is equivalent to the net sale price of the relinquished property, it is the minimum replacement property value a taxpayer must purchase in order to maximize the tax deferral under 1031.
If you are doing a reverse exchange, you will have 45 days from the parked replacement property purchase closing to identify to us in writing relinquished property you might sell to complete the exchange, and 180 days from the purchase date to close on the sale of property identified in the first 45 days in order for the exchange to close within the safe harbor.
The deadlines may not be extended unless a federally declared disaster causes the IRS to declare tax relief entitling you to a deadline extension, or there is a terroristic or military action.
45 days does not seem like enough time to identify replacement property:
It can be challenging for taxpayers engaged in forward exchanges to identify replacement property by the 45-day deadline. It might help you to know that you do not need to have a replacement property under contract in order to identify it for the exchange. Notwithstanding, we find those taxpayers who already have a replacement property under contract before their relinquished sale closes have the most success in completing their exchanges. This approach eliminates the risk of not being able to identify replacement property by the 45th day. Also, often investors identify (and purchase) a Delaware Statutory Trust (“DST”) as replacement property, sometimes as a fallback if they cannot find other property to identify. The IRS considers DSTs the same as other qualified real property for 1031 exchanges. We can discuss these with you and direct you to professionals who can answer all of your questions and assist you with identifying and purchasing DSTs.
More on the 180-day deadline
There is a 180-day safe harbor for 1031 exchanges, and most exchange types must end by midnight on the 180th day after the first transaction. So, if you are doing any kind of forward exchange, it must end within the safe harbor no later than midnight on the 180th day after the relinquished sale closes. If you are doing a safe-harbor reverse exchange, the exchange must end no later than midnight on the 180th after the replacement purchase is made; HOWEVER, you can elect to do a non-safe harbor reverse exchange which will extend the exchange period beyond the 180th day. A non-safe harbor exchange might invite IRS scrutiny if you are audited, because you will have given up certain protections not in effect beyond the 180-day safe harbor.
Strategic 1031 Exchange Advisors, LLC, a Georgia limited liability company, is a qualified intermediary for 1031 exchanges only. It is not an accounting firm, law firm or registered investment professional and therefore is not qualified to give accounting, tax, legal or investment advice, and, further, cannot act in an agency capacity on behalf of its clients. This website is for informational purposes only and does not and is not intended to constitute accounting, tax, legal or investment advice. We advise you to consult with your accountant, attorney and investment professional on all matters related to your exchange.