Fourth Quarter 1031 Exchanges May Have Shorter Time

Many do not realize that the Tax Code states the new Replacement Property must be purchased by The earlier of two possible dates:

 

• 180 days after the date the Relinquished Property is transferred in the exchange, OR
• The due date of the taxpayer’s return for the taxable year in which the Relinquished Property is transferred.

What this means is that a taxpayer who sold real estate and began a 1031 Exchange after October 18, 2022, must close on the new Replacement Property by the due date of their 2022 tax return, which is April 17, 2023.

 

For example, an investor who sells a 1031 property on December 12, 2022, must identify new Replacement Property by January 26, 2023 (45-day ID rule) and then, most believe, close on Replacement Property by June 10, 2023 (180-day closing rule). However, Section 1031 (a)(3)(B) shortens this exchange period. The investor must close by April 17, 2023 – 53 calendar days before the assumed 180 days date. To get the full 180-day period, the taxpayer must file a tax extension for their entire tax return. If the investor extends their tax filing, they will then have until June 10, 2023, to close on the property – the full 180 days.

 

Exchangers are strongly encouraged to discuss this deadline issue and the effect of filing an extension with their tax advisors. Although there is no cost for obtaining extensions and they are liberally granted; filing for an extension does not extend the time to pay taxes. Therefore, estimated payments may be required to avoid interest and penalties.

 

Be sure to consult your tax advisor regarding your tax filing requirement dates. The information above is provided by IPX1031 a national leader in 1031 Exchange services.