1031 Tax Strategies

Here are a few things to remember when you have a 1031 Exchange that straddles 2 tax years.

First, if your exchange began in the previous tax year and your 180 day exchange period is due to expire after the tax filing date, you need to file an extension to your taxes in order to receive all 180 days for your exchange. In 2022, the tax filing date is April 18th for most tax filers. This extension is due to the Emancipation Day Holiday which is observed on April 16th in the District of Columbia. Since April 16th is a Saturday, it is being observed on April 15th so most tax filers get a few extra days.

Therefore, if your 180 days of your exchange expires after April 18th, you need to file an extension if you need the additional time to acquire your replacement property.

Secondly, what if your relinquished property closed in the prior tax year, but you are unable to acquire replacement property and you receive your funds back from your Qualified Intermediary this year? The benefit for these taxpayers is that can receive a bit of a deferral.

The taxpayer can either elect to report the gain on their tax return for the 2021 tax year, or

The taxpayer can recognize the gain on the tax return for the year in which they received the proceeds from the Qualified Intermediary. If the taxpayer selects this option, they receive a one year deferral on the gain.

Taxpayers need to consult with their tax professionals as tax straddling does not apply in all cases.

For more information, please reach out to your tax professional for specific questions or contact the specialists here at Security 1st Exchange for assistance.