The successful completion of a 1031 exchange transaction requires investors (exchangors) to comply with certain 1031 exchange deadlines pursuant to Section 1031 of the Internal Revenue Code, which have been further clarified within Section 1.1031 of the Treasury Regulations.
The 1031 exchange deadlines consist of the 45 calendar day identification deadline and the 180 calendar day (or less) 1031 exchange completion period. These 1031 exchange due dates cannot be extended under any circumstances, unless the President of the United States declares a natural disaster area that affects the properties or parties involved in the 1031 exchange transaction.
Meeting these deadlines is absolutely critical to ensure a successful 1031 exchange transaction. Missing either of these 1031 exchange due dates will result in a failed tax-deferred exchange transaction and the recognition of the taxable gains associated with the sale of the subject relinquished property.
45 Calendar Day Identification Requirement
When completing a 1031 exchange transaction you must identify your potential replacement property or properties to Exeter 1031 Exchange Services, LLC (Exeter1031™) no later than midnight of the 45th calendar day following the close of the sale of the relinquished property. For example, if the sale of your relinquished property closed on October 31st, the first day of your 45 calendar day identification period would be November 1st and the 45 calendar day identification deadline would be December 15th.
This 1031 exchange identification due date is exactly 45 calendar days. If the 45th calendar day lands on a Saturday, Sunday or legal holiday, the 1031 exchange due date is NOT extended to the next business day. The due date is still the 45th calendar day after the close of the sale of your relinquished property.
Investors (exchangors) should plan ahead once they have decided to structure a 1031 exchange transaction and begin immediately looking for potential replacement properties. Their 45 calendar day identification deadline will pass very quickly. Investors may wish to approach and negotiate with the buyer of their relinquished property for an extended closing period or an extension of time to close the transaction to provide them with more time to locate and identify suitable replacement properties. The 45 calendar day identification deadline and the 180 calendar day exchange period do not start running until the sale of the relinquished property closes.
The identification of replacement property notice should be in writing, signed by the investor (exchangor), and sent or delivered to the qualified intermediary, sometimes referred to as an accommodator or facilitator, via confirmed email, facsimile, U.S. Mail, personal delivery or overnight courier. Clients can submit their replacement property identification forms to Exeter1031™ 24 hours a day, 365 days a year. Exeter1031™ provides investors with 24/7/365 access to its 1031 exchange specialists for assistance in completing the identification of replacement property notice. Refer to our webpage on Replacement Property Identification Requirements for more complete information on the identification process.
Investors (exchangors) can change their mind by formally revoking any identification of replacement property form previously made and subsequently submitting a new identification form at any time during their 45 calendar day identification period, but they can’t change their mind after the 45 calendar day identification period has passed. Revoking and submitting a new identification form does not change or reset the original 45 calendar day identification deadline.
The act of altering, changing, amending, swapping or backdating an identification of replacement property form for any reason after the 45 calendar day identification deadline has passed is tax fraud. Investors and their advisors are wise to avoid any qualified intermediary (or any other party) that engages, permits, suggests or encourages any such illegal practice.
Failure to identify any replacement properties within the 45 calendar day period will result in a failed 1031 exchange and the transaction must be reported as a taxable sale rather than a tax-deferred exchange. Investors should discuss failed 1031 exchanges with their tax advisor as there may be ways to offset the taxable gain.
180 Calendar Day Exchange Period
Investors (exchangors) must complete their 1031 exchange transaction, which includes the conveyance (receipt) of ownership (generally legal title) to all of their replacement properties they intend to acquire, no later than the earlier of:
(1) midnight of the 180th calendar day following the close of the sale of the relinquished property; or
(2) the due date of their federal income tax return for the tax year in which the sale of the relinquished property closed, including any extensions of time to file their federal income tax return.
Investors do not need to be concerned about part (2) above unless the sale of their first relinquished property closed on or after October 17th and on or before December 31st of any given tax year. Closing on the sale of their first relinquished property during these dates will mean that the 180th calendar day deadline falls after April 15th (the due date for most individual income tax returns) and the investor will have less than 180 calendar days to complete their 1031 exchange transaction unless they file for an extension of time to file their federal and, if necessary, state income tax returns. Once any extensions of time to file the income tax returns have been filed, the investor must complete their 1031 exchange transaction within the 180 calendar days. Investors will file their federal and, if applicable, state income tax returns once they have completed their 1031 exchange. Investors (exchangors) will never have more than 180 calendar days to complete their 1031 exchange transaction.
Help is Always Available
Exeter1031™ is always available to assist investors in navigating through these 1031 exchange deadlines. Investors and their advisors are always welcome to contact our 1031 specialists at any of our regional office locations for assistance. Our 1031 specialists are available any time – day or night – to answer your questions.
