The IRS strictly limits how much time you get to complete a 1031 exchange.
You must follow these rules.
And you need to be able to prove it.
Let’s take a 1000-foot view. From the exchanging party’s perspective, the process looks something like this.
It REALLY helps to be organized if you want to pull this off without a hitch.
Most exchanges fall into two categories
We’ve seen taxpayers so disorganized that their exchange ended up failing.
It’s an expensive mistake.
And it’s so easy to avoid!
(Put simply, timing and planning are important)
We take your 1031 exchange process very seriously. It has to be detailed, efficient, and safe. Once you plan for this, the exchange process is actually quite relaxing and enjoyable.
You are going to sell a commercial property.
The sale closes on March 1.
And your 1031 deadlines begin counting down.
A month passes quickly.
Then another week.
It’s April 9.
After a few frustrating days, you decide that you’re going to eat the taxes.
Now you owe the IRS more than $250,000 in capital gains taxes.
(And you haven’t even calculated your depreciation recapture)
Of course, this is just an example. You may think it sounds dramatic or over-simplified. But make no mistake, these haphazard exchanges are very common in the 1031 world.
Don’t get caught unprepared!
Let’s try again.
(Pro Tip: Just google “[X] days from [sale date]”)
(The answer pops right out)
Back to the story.
You now list properties that you’re interested in. Your QI helps you stay within the limits.
For example, the second property you list goes off the market on April 3.
“No problem!” says your QI.
“We’ll take that off the list and you still have until April 15 to identify a replacement.”
You enter into a contract to purchase one of your ID’d properties on June 4.
On July 1, the seller says they need to push up closing to July 8.
You close on a new $3.5M property July 8.
1031 exchange complete!
Now all of your gains keep working for you.
Onward and upward.
A good QI will process hundreds or thousands of exchanges each year. Rely on your intermediary to keep your exchange organized rather than tackling the IRS yourself.
We hope you enjoyed the read.
Have specific questions?
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