Question 1

What is the exchange period in a 1031 transaction?

Accepted Answer

Exchange period: the time frame within which the taxpayer must complete a 1031 like-kind exchange. IRC Section 1031 requires: identification period (the taxpayer must identify replacement property within 45 days of selling the relinquished property), and exchange period (the taxpayer must acquire the replacement property within 180 days of selling the relinquished property, or the due date of the taxpayer’s tax return for the year of the sale, whichever is earlier). The deadlines: are strict (no extensions: even for weekends, holidays, or unforeseen circumstances; except: IRS disaster relief may extend deadlines in declared disaster areas).

Question 2

What are the identification rules during the exchange period?

Accepted Answer

Identification rules: the taxpayer must identify potential replacement properties in writing within 45 days. Methods: three-property rule (the taxpayer can identify up to 3 properties of any value), 200% rule (the taxpayer can identify any number of properties as long as their total fair market value does not exceed 200% of the relinquished property’s value), and 95% rule (the taxpayer can identify any number of properties of any value as long as the taxpayer acquires at least 95% of the total value of all identified properties). The identification: must be: in writing, signed by the taxpayer, and delivered to the qualified intermediary or another designated party (not a disqualified person).

Question 3

What happens if the exchange period deadlines are missed?

Accepted Answer

Missed deadlines: if the 45-day identification deadline is missed: the exchange fails entirely (the taxpayer cannot identify or acquire any replacement property; the sale is treated as a taxable sale), if the 180-day acquisition deadline is missed: the exchange fails for any property not acquired (the taxpayer pays tax on the gain attributable to the unacquired property), and partial exchange (if the taxpayer acquires some but not all of the identified replacement properties: the exchange is valid for the acquired properties and the taxpayer pays tax on the gain attributable to the boot received). There are no extensions: the deadlines are jurisdictional (the IRS cannot waive them except in: declared disaster areas through specific relief notices).

Exchange Period in 1031 Transaction

1031 Exchange Period

Deadlines

Identification Rules

Missed Deadlines

Related Terms

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