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1031 Exchange Deadlines

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1031 Exchange Deadlines

From when the relinquished property sells, a 1031 exchanger has 180 calendar days to complete their process and take title to their replacement property(ies). In addition, a 1031 exchanger must properly identify their potential replacement properties within 45 calendar days of their sale.

There is some nuance and detail to consider here.

Let’s get started.

45 Days to Identify

45 Days to Identify

This is often the most difficult rule for our clients.

After you sell, the IRS requires that you officially identify (in writing) what you might buy next.

You only get 45 days after closing.

Failure to identify properly means you fail your exchange.

No ifsands, or buts.

We beg you to take this requirement seriously.

In some cases, so-called 1031 “rules” are actually “best practices”

They are open to interpretation.

Not the 1031 deadlines.

These are set in concrete.

To make this easier, we have our clients use an interactive online ID form:

Replacement Property Identification Form 

We’ll explore this form a little further soon.

That’s because you need to know the 3 – Property Rule.

(Note: A signed contract, letter of intent, or other negotiated agreement can count as your identification so long as the property is unambiguously described therein)

Replacement Property Identification Form 

We’ll explore this form a little further soon.

That’s because you need to know the 3 – Property Rule.

(Note: A signed contract, letter of intent, or other negotiated agreement can count as your identification so long as the property is unambiguously described therein)

180 Days to Close

180 Days to Close

This is the other big deadline.

After you sell, the IRS gives you 180 calendar days to complete your 1031 exchange. (In other words, you have 135 days after the end of your identification period)

When they IRS said “exchange completed” within 180 days, they mean 100% completed.

This includes:

If you’re purchasing or selling multiple properties as part of the same exchange, you must meet the same 180-day period beginning upon sale of your first relinquished property.

The first sale always triggers the 180 days.

The last purchase must close before the end of those 180 days.

Final Thought:

Get those ducks in a row.

Especially if you’re buying or selling multiple assets in the same 1031 exchange.

3-Property Rule

3-Property Rule

In brief, the IRS says that you must provide your Qualified Intermediary, in writing, up to three addresses that you intend to pursue as your replacement property(ies) in a 1031.

In other words:

If you want to buy it, you have to tell you QI early on.

These property descriptions must be

Let’s go back to that ID form we use:

Replacement Property Identification Form 

Our standard form doesn’t even give an option to ID more than three replacement properties.

The vast majority of 1031 exchange clients only list one, two, or three replacements.

(It’s somewhere close to 99% of our clients)

Replacement Property Identification Form 

Our standard form doesn’t even give an option to ID more than three replacement properties. The vast majority of 1031 exchange clients only list one, two, or three replacements. (It’s somewhere close to 99% of our clients)

As long as you identify three or fewer, you can list properties of any value.

If you list more than three properties, the rules change.

How?

Well, then you must either follow the:

200% rule or the 95% Rule.

Failure to properly follow these rules will result in a failed 1031 exchange. (No tax deferral)

Final Thought:

You must identify properly.

The IRS is not lenient about this.

200% Rule vs 95% Rule

200% Rule vs 95% Rule

What if you need to identify more than three properties in your like-kind exchange?

Again, you have two options.

And same as always, failure to comply with these will result in a failed 1031.

Let’s talk about option #1: the 200% Rule

Let’s say you sell a $750,000 duplex.

And you want to identify more than three properties using the 200% rule.

Well, the combined value of all identified properties cannot exceed $1,500,000 (or 200% of $750,000).

This is very limiting.

Especially since you want to trade equal or up in value.

…or, Option #2, you can try the 95% rule.

Consider the same $750,000 duplex.

And you identify more than three properties. But their combined value is $3,000,000.

Well, you can still do a 1031 exchange if you purchase at least $2,850,000 of the identified value (or 95% of $3,000,000).

Not easy.

We see this most often in cases where you intend to buy many smaller, similar properties from a single seller.

Our advice?

Stick with identifying just three.

It’s much easier.

If you need to use the 200% rule or 95% rule, work closely with your 1031x exchange coordinator.

Learn to Master 1031 Exchanges

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