Understanding the Time Crunch in 1031 Exchanges

by Maura Snabes, Esq., CES, NTP

October 2024

Navigating the intricacies of a 1031 Exchange can feel like a race against the clock—especially when it comes to understanding the timelines involved. Here’s a deeper dive into why "180 days" might not always mean a full 180 days, particularly for exchanges initiated between mid-October of any given year and December 31st.

When you close on the sale of the Relinquished Property, you have 45 days to identify Replacement Property/Properties and 180 days to complete the acquisition(s). However, this straightforward process has a twist under the current Tax Code.

The key point to remember is that the new Replacement Property must be acquired by the earlier of these two deadlines:

1. 180 days after the transfer of the Relinquished Property, or
2. The due date of your tax return for the year in which the Relinquished Property was sold.

For example, let’s say an investor sells a property on November 1, 2024. The clock starts ticking, and they must identify a new property by December 16, 2024—the end of the 45-day identification period. However, here’s where things get tricky: instead of having until April 30, 2025 (180 days later) to close on the new property, the investor must actually complete the transaction by March 15, 2024 for LLCs filing as a partnership or April 15, 2024 for individuals and C corporations or LLCs electing to file as one—the due date for their 2024 tax return.

To regain that full 180-day window, taxpayers must file for a tax extension. By doing so, the investor could then push their closing deadline back, fully utilizing the 180 days.

In summary, understanding these nuances can save you from unnecessary stress and potentially costly mistakes. Always consult your tax advisor to ensure you are aware of your specific filing requirements and deadlines!