Frequently Asked Questions
What are the time limits to complete a 1031 tax deferred like-kind exchange?
While a like-kind exchange does not have to be a simple swap of properties, you must meet two time limits or the entire gain will be taxable. These limits cannot be extended for any circumstance or hardship except in the case of presidentially declared disasters.
The first time limit is that you have 45 days from the date you sell the relinquished property to identify potential replacement properties. The identification notice must be in writing, signed by you and delivered to a person involved in the exchange like the seller of the replacement property or the qualified intermediary.
Notice to only your attorney, real estate agent, accountant or similar persons acting as your agent is never sufficient.
Replacement properties must be clearly described in the written identification notice. In the case of real estate, this means a legal description, street address or a distinguishable name. The IRS has guidelines for the maximum number and values of properties that can be identified.
The second time limit is that your replacement property must be received and the exchange completed no later than 180 days after the sale of the exchanged property or the due date (with extensions) of the income tax return for the tax year in which the relinquished property was sold, whichever is earlier.
The replacement property received must be substantially the same as the property identified within the 45-day limit described above.
There restrictions for deferred and reverse exchanges.
It is very important to know that taking control of any cash or other proceeds before the exchange is complete may disqualify the entire transaction from like-kind exchange treatment and make ALL gains immediately taxable.
One way to avoid premature receipt of cash or other proceeds is to use a qualified intermediary or other exchange facilitator to hold those proceeds until the exchange is complete.
If cash or other proceeds that are not like-kind property are received at the conclusion of the exchange, the transaction will still qualify as a like-kind exchange. Gain may be taxable, but only to the extent of the proceeds that are not like-kind property.
You cannot act as your own facilitator. In addition, your agent (including your real estate agent or broker, investment banker or broker, accountant, attorney, employee or anyone who has worked for you in those capacities within the previous two years) cannot act as your facilitator.
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