Friday, March 20, 2009

1031 Exchange Timing Issue

Normally the 1031 tax deferred exchange of investment property allows for 180 days from the sale of your relinquished property to acquire the replacement property. That is what most people remember as the amount of allowable time. People tend to forget the second line of that regulations which states -or until the next tax return filing - by the way, that is not a direct quote. 180 days is maximum time allowed and it can be shortened if you file your taxes. An example would be if an investor closes escrow (through a 1031 exchange) on Dec. 1st. 180 days ahead would be approximately the end of May (depending on leap years, etc.) If you file your taxes on April 15th or sooner - that date then is the last day of your exchange. The reason for this moving target is that the IRS wants both legs of the exchange reflected on the tax return. The solution is simple to keep the full 180 days - file an automatic extension. Then, when you actually file your taxes, you will have hopefully completed your exchange and can reflect the whole transaction on the form.

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